Skip to main content
SpringerLink
Log in

Will Strangers Help you Enter? The Effect of Foreign Bank Presence on New Firm Entry

  • Published:
Journal of Financial Services Research Aims and scope Submit manuscript

Abstract

We examine the effect of foreign bank presence on new firm entry in 83 economies over the 2005–2013 period. The empirical findings show that foreign bank presence exerts a positive and significant effect on firm entry. This effect subsides in countries with strong creditor rights, while it strengthens in economies with high depth of credit information sharing. In further analysis, we find that the type of credit information sharing provider matters. The positive effect of foreign bank presence on firm entry strengthens in the presence of a private credit bureau, whereas it is subdued in the presence of a public credit registry. Finally, we find some evidence that cultural and information sharing distance between home and host economies weakens the positive effect of foreign bank presence on firm entry. In terms of policy, attracting foreign banks while strengthening credit information sharing through private credit bureaus could benefit entrepreneurship in host economies.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. To the best our knowledge there is only one study (Havrylchyk 2012) that examines the impact of foreign bank presence on entrepreneurship for a sample of transition economies over the 2000–2005. However, there are some important differences between this paper and ours. The study of Havrylchyk (2012) focuses on few transition economies, whereas our paper uses a global sample of 83 economies. Secondly, we utilize the recent foreign bank ownership dataset of Claessens and van Horen (2014a, 2015). This dataset represent the most diligent effort to measure accurately cross-country foreign bank presence. Thirdly and more importantly, our study takes into account conditioning effects due to important institutional arrangements (creditor rights and credit information sharing) that aim to alleviate the information asymmetry between banks and candidate borrowers. Finally, the study of Havrylchyk (2012) is for the 2000–2005 period while the timeline of our study (2005–2013) is wider and also includes the crisis and some of the post-crisis period.

  2. The analysis in this paper highlights the possible channels through which foreign bank presence could affect new firm entry. However, the use country-level data (i.e. we do not observe bank-firm relationships) renders beyond the scope of this paper to evaluate if new firm entrants could benefit directly from foreign bank lending or indirectly because foreign bank presence could alter the lending policies of domestic banks.

  3. In robustness checks we also use an alternative measure of entrepreneurship: this is the nascent entrepreneurship sourced from the Global Entrepreneurship Monitor (GEM). We have extensively reviewed the literature on the determinants of new firm entry in a cross-country framework. The new firm entry rate from the World Bank Entrepreneurship Database together with the GEM measure of entrepreneurship are the most commonly employed variables in the literature to capture country-level entrepreneurship.

  4. The first ratio, the number of foreign banks divided by the total number of banks in a country, may provide a better measure of foreign bank presence in terms of entry. The two ratios of foreign bank presence are highly correlated (correlation stands at around 0.8, see Table 8 in appendix) and estimations using either of these two ratios of foreign bank presence produce qualitatively similar results. Therefore, in our main analysis we present the results using the ratio of foreign banks assets over total bank assets (FBAST) as a measure of foreign bank presence. In the robustness checks section of this paper we also present results using the ratio of the number of foreign banks over total banks (FBNUM).

  5. In alternative estimations we use as a measure of competition in the banking industry the Lerner index at the country level. The Lerner index is also available in the Global Financial Development Database of the World Bank but is available for fewer years than the C3 ratio. Thus, we report the estimations that employ the C3 ratio as a measure of bank competition. The results are qualitatively similar when we employ the Lerner index as a measure of competition.

  6. Initially, we attempted to employ as endogenous variables just the lagged dependent variable (lnENTt-1) and the foreign bank presence variable (lnFBAST). In this case we obtain significant p-values for the Hansen J test. We find that by treating the lagged dependent variable (lnENTt-1), the foreign bank presence variable (lnFBAST) and the business freedom (BUSFREE) variable as endogenous we obtain insignificant p-values for the Hansen J test. This suggests that the instruments are acceptable and the business freedom (BUSFREE) variable is better modelled as endogenous in the dynamic panel models. This also makes sense from a theoretical standpoint. The business freedom (BUSFREE) is a measure of regulation of firm entry and therefore it is rational to consider it as endogenous to the entrepreneurship rate.

  7. Note that since in the dynamic panel analysis we treat foreign bank presence (lnFBAST) as endogenous, we also treat as endogenous the interaction terms of this variable with creditor rights (CR) and information sharing (DEPTH) (Asiedu and Lien 2011).

  8. The correlation (see Table 8 in the appendix) between the depth of information sharing (DEPTH) and the presence of private credit bureau dummy (PVDUM) is around 0.7, while it is only 0.066 with the public credit registry dummy (PBDUM). This provides evidence that private credit bureaus are the main source of the depth of information sharing in a given country.

  9. We source the data to construct the cultural proximity and geographic distance variables from CEPII. www.cepii.fr. Note that the cultural proximity and geographic distance variables we construct are time variant. The geographic distance and cultural proximity between two given countries is time invariant but the weights that we multiply these characteristics with (i.e. the share of each home country’s foreign bank assets over the total foreign bank assets in a given host economy) to construct the distance and proximity variables in this study are time variant.

  10. In unreported estimations we also run model 8 of Table 4 with the inclusion of a distance measure in terms of the level of economic development (lnGDPcap) and its interaction with the foreign bank presence variable. Our results are robust to this exercise. This is to ensure that the significant and negative effect of the interaction term between distance in terms of depth of credit information sharing (DISDEPTH) and foreign bank presence (lnFBAST) does not reflect differences between the home and host economies in terms of the level of economic development.

  11. Note that in model 9 of Table 4 we have instrument proliferation because we include all the interaction terms of the distance and proximity variables with the foreign bank presence variable in the same specification, and we have modelled these interactions as endogenous. Since the foreign bank presence variable is endogenous, its interaction term with other variables is also endogenous (Asiedu and Lien 2011), and this is the approach we have adopted in this paper. Roodman (2009) suggests that in dynamic panel models the ratio between instruments and cross-sections (i.e. countries in our case) should be smaller than unity. Model 9 of Table 4 is the only dynamic panel model in this study that the value of this ratio is higher than unity. Therefore, we have estimated again model 9 of Table 4 with the difference GMM estimator, which uses a lower number of instruments, rather than the system GMM estimator and we obtain qualitatively similar results. These estimations are available upon request.

  12. We assign the regulatory data following the literature (Houston et al. 2010; Fratzscher et al. 2016). Specifically, we assign values from the 2006 survey to the period 2004–2007 and the data employed between 2008 and 2013 are sourced from the 2011 survey.

  13. Note that in the models of Table 5 that include interaction terms between the foreign bank presence variable (lnFBNUM) and other country characteristics, following Giannetti and Ongena (2009), we also instrument these interaction terms with the interactions between the instrumental variables RESFB and DENFB with the corresponding country characteristics. This procedure is important because the interaction between an endogenous variable and another variable is also endogenous (Asiedu and Lien 2011). However, not instrumenting for the interaction terms does not yield significant changes in our results.

  14. The GEM database has less coverage in terms of countries in comparison with the World Bank Entrepreneurship Database.

  15. We obtain critical values for the WIT from Stock and Yogo (2005).

  16. We have also estimated 2SLS IV models that include the interaction terms between foreign banks presence and the other distance (proximity) variables (geographic distance, cultural proximity and creditor rights distance), but we did not find statistically significant effects.

  17. As a first step in the panel VAR estimation we follow Lütkepohl (2006) and assume the optimal order of lags for the right-hand side variables of the system of equations. We compute for the first, second and third lag the Arellano-Bond GMM estimator. We confirm with the results of the Akaike Information Criterion (AIC) and with the results of the Arellano-Bond AR tests that the optimal lag is of order one. Furthermore, because we cannot have time effects, variables are time-demeaned to remove unwanted trends.

References

  • Aghion P, Fally T, Scarpetta S (2007) Credit constraints as a barrier to the entry and post-entry growth of firms. Econ Policy 52(4):731–779

    Google Scholar 

  • Aidis R, Estrin S, Mickiewicz T (2012) Size matters: entrepreneurial entry and government. Small Bus Econ 39(1):119–139

    Google Scholar 

  • Ardagna S, Lusardi A (2010) The effect of regulation on entrepreneurship: evidence across countries. J Eur Econ Assoc 8(2–3):594–605

    Google Scholar 

  • Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58(2):277–297

    Google Scholar 

  • Arellano M, Bover O (1995) Another look at instrumental variables estimation of error-component models. J Econ 68(1):29–51

    Google Scholar 

  • Asiedu E, Lien D (2011) Democracy, foreign direct investment, and natural resources. J Int Econ 84(1):99–111

    Google Scholar 

  • Avery RB, Bostic RW, Samolyk KA (1998) The role of personal wealth in small business finance. J Bank Financ 22:1019–1061

    Google Scholar 

  • Baliamoune-Lutz M, Garello P (2014) Tax structure and entrepreneurship. Small Bus Econ 42(1):165–190

    Google Scholar 

  • Bartelsman EJ, Scarpetta S, Schivardi F (2003) Comparative analysis of firm demographics and survival: micro-level evidence for the OECD countries. OECD economics department working paper no. 348, OECD, Paris

  • Bartelsman EJ, Haltiwanger J, Scarpetta S (2004) Microeconomic evidence of creative destruction in industrial and developing countries. World Bank policy research working paper 3464

  • Barth JR, Caprio G Jr, Levine R (2008) Bank regulations are changing: for better or worse? Comp Econ Stud 50(4):537–563

    Google Scholar 

  • Barth JR, Caprio G Jr, Levine R (2013) Bank regulation and supervision in 180 countries from 1999 to 2011. J Financ Econ Policy 5(2):111–219

    Google Scholar 

  • Beck T, Demirgüç-Kunt A, Maksimovic V (2004) Bank competition, financing obstacles and access to credit. J Money Credit Bank 36(3):627–648

    Google Scholar 

  • Beck T, Demirgüç-Kunt A, Martínez Pería MS (2011) Bank financing for SMEs: evidence across countries and bank ownership types. J Financ Serv Res 39(1–2):35–54

    Google Scholar 

  • Beck T, Ioannidou V, Schäfer L (2016) Foreigners vs. natives: Bank lending technologies and loan pricing. Manag Sci forthcoming

  • Belitski M, Chowdhury F, Desai S (2016) Taxes, corruption, and entry. Small Bus Econ 47(1):201–216

    Google Scholar 

  • Berger AN, Black LK (2011) Bank size, lending technologies, and small business finance. J Bank Financ 35(3):724–735

    Google Scholar 

  • Berger AN, Frame WS (2007) Small business credit scoring and credit availability. J Small Bus Manag 45(1):5–22

    Google Scholar 

  • Berger AN, Udell GF (2002) Small business credit availability and relationship lending: the importance of Bank Organisational structure. Econ J 112(477):32–53

    Google Scholar 

  • Berger AN, Udell GF (2006) A more complete conceptual framework for SME finance. J Bank Financ 30(11):2945–2966

    Google Scholar 

  • Berger A, DeYoung R, Genay H, Udell G (2000) Globalisation of financial institutions: evidence from cross-border banking performance. Brookings-Wharton Papers on Financial Service 3:23–120

    Google Scholar 

  • Berger AN, Klapper LF, Udell GF (2001) The ability of banks to lend to informationally opaque small businesses. J Bank Financ 25(12):2127–2167

    Google Scholar 

  • Berger AN, Hasan I, Klapper LF (2004) Further evidence on the link between finance and growth: an international analysis of community banking and economic performance. J Financ Serv Res 25(2–3):169–202

    Google Scholar 

  • Berger AN, Miller NH, Petersen MA, Rajan RG, Stein JC (2005) Does function follow organizational form? Evidence from the lending practices of large and small banks. J Financ Econ 76(2):237–269

    Google Scholar 

  • Berger AN, Klapper LF, Martínez Pería MS, Zaidi R (2008) Bank ownership type and banking relationships. J Financ Intermed 17(1):37–62

    Google Scholar 

  • Berger AN, Frame WS, Ioannidou V (2011) Tests of ex ante versus ex post theories of collateral using private and public information. J Financ Econ 100(1):85–97

    Google Scholar 

  • Besanko D, Thakor AV (1987) Collateral and rationing: sorting Equalibria in monopolistic and competitive credit markets. Int Econ Rev 28(3):671–689

    Google Scholar 

  • Bester H (1985) Screening vs. rationing in credit markets with imperfect information. Am Econ Rev 75(4):850–855

    Google Scholar 

  • Black SE, Strahan PE (2002) Entrepreneurship and bank credit availability. J Financ 57(6):2807–2833

    Google Scholar 

  • Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel-data models. J Econ 87(1):115–143

    Google Scholar 

  • Bonaccorsi di Patti E, Dell’Ariccia G (2004) Bank competition and firm creation. J Money Credit Bank 36(2):225–251

    Google Scholar 

  • Bond SR (2002) Dynamic panel data models: a guide to micro data methods and practice. Port Econ J 1(2):141–162

    Google Scholar 

  • Bos JW, De Haas R, Millone M (2016) Show me yours and I'll show you mine: sharing borrower information in a competitive credit market. Baffi Carefin Centre Research Paper, 2015-2018

  • Branstetter L, Lima F, Taylor LJ, Venâncio A (2014) Do entry regulations deter entrepreneurship and job creation? Evidence from recent reforms in Portugal. The Econ J 124(577):805-832

  • Braunerhjelm P, Eklund JE (2014) Taxes, tax administrative burdens and new firm formation. Kyklos 67(1):1–11

    Google Scholar 

  • Brown M, Jappelli T, Pagano M (2009) Information sharing and credit: firm-level evidence from transition countries. J Financ Intermed 18(2):151–172

    Google Scholar 

  • Brown M, Ongena S, Popov A, Yeşin P (2011) Who needs credit and who gets credit in Eastern Europe? Econ Policy 26(65):93–130

    Google Scholar 

  • Bruno V, Hauswald R (2014) The real effect of foreign banks. Rev Financ 18(5):1683–1716

    Google Scholar 

  • Bruno RL, Bychkova M, Estrin S (2013) Institutional determinants of new firm entry in Russia: a cross-regional analysis. Rev Econ Stat 95(5):1740–1749

    Google Scholar 

  • Bulan L, Yan Z (2009) The pecking order of financing in the Firm’s life cycle. Bank Financ Lett 1(3):129–140

    Google Scholar 

  • Business D (2010) Doing business 2010. World Bank and the international finance corporation. Oxford University Press, Washington DC

    Google Scholar 

  • Caves RE (1998) Industrial organization and new findings on the turnover and mobility of firms. J Econ Lit 36(4):1947–1982

    Google Scholar 

  • Cetorelli N, Strahan P (2006) Finance as a barrier to entry: Bank competition and industry structure in local U.S. markets. J Financ 61(1):437–461

    Google Scholar 

  • Chavis LW, Klapper L, Love I (2011) The impact of the business environment on young firm financing. World Bank Econ Rev 25(3):448–455

    Google Scholar 

  • Claessens S, Van Horen N (2012) Being a foreigner among domestic banks: asset or liability? J Bank Financ 36(5):1276–1290

    Google Scholar 

  • Claessens S, Van Horen N (2014a) Foreign banks: trends and impact. J Money Credit Bank 46(1):295–326

    Google Scholar 

  • Claessens S, Van Horen N (2014b) Location decisions of foreign banks and competitor remoteness. J Money Credit Bank 46(1):145–170

    Google Scholar 

  • Claessens S, Van Horen N (2015) The impact of the global financial crisis on banking globalization. IMF Economic Review 63(4):868–918

    Google Scholar 

  • Clarke G, Cull R, Martínez Pería MS, Sánchez SM (2001) Foreign Bank entry: experience, implications for developing countries, and agenda for further research. World Bank policy research working paper no. 2698

  • Clarke G, Cull R, Martínez Pería MS, Sánchez SM (2002) Bank lending to small businesses in Latin America. WB Policy Research Working Paper, no. 2760

  • Clarke G, Cull R, Martínez Pería MS, Sánchez SM (2005) Bank lending to small businesses in Latin America: does bank origin matter? J Money Credit Bank 37:83–118

    Google Scholar 

  • Cohen WM, Klepper S (1992) The anatomy of Industry R&D Intensity Distributions. Am Econ Rev 82(4):773–788

    Google Scholar 

  • Cull R, Martínez Pería MS (2013) Bank ownership and lending patterns during the 2008–2009 financial crisis: evidence from Latin America and Eastern Europe. J Bank Financ 37(12):4861–4878

    Google Scholar 

  • Cullen J, Gordon RH (2007) Taxes and entrepreneurial risk-taking: theory and evidence for the U.S. J Public Econ 91(7–8):1479–1505

    Google Scholar 

  • Da Rin M, Di Giacomo M, Sembenelli A (2011) Entrepreneurship, firm entry, and the taxation of corporate income: evidence from Europe. J Public Econ 95(9–10):1048–1066

    Google Scholar 

  • De Haas R, Naaborg I (2006) “Foreign banks in transition countries: to whom do they lend and how are they financed?”, financial markets. Institutions Instruments 15(4):159–199

    Google Scholar 

  • De Haas R, Van Lelyveld I (2006) Foreign banks and credit stability in central and Eastern Europe: friends or foes? J Bank Financ 30(7):1927–1952

    Google Scholar 

  • De Haas R, Van Horen N, Zettelmeyer J (2010) Running for Exit: International Banks and Crisis Transmission. mimeo

  • De la Torre A, Martínez Pería MS, Schmukler SL (2010) Bank involvement with SMEs: beyond relationship lending. J Bank Financ 34(9):2280–2293

    Google Scholar 

  • Degryse H, Havrylchk O, Jurzyk E, Kozak S (2012) Foreign bank entry, credit allocation and lending rates in emerging markets: empirical evidence from Poland. J Bank Financ 36(12):2949–2959

    Google Scholar 

  • Delis M, Hasan I, Mylonidis N (2016) Foreign Bank ownership and income inequality: empirical evidence. Fordham Univeristy, Working Paper

    Google Scholar 

  • Dell’Ariccia G, Marquez R (2004) Information and Bank credit allocation. J Financ Econ 72(1):185–214

    Google Scholar 

  • Dell’Ariccia G, Marquez R (2006) Lending booms and lending standards. J Financ 61(5):2511–2546

    Google Scholar 

  • Demirguç-Kunt A, Love I, Maksimovic V (2006) Business environment and the incorporation decision. J Bank Financ 30(11):2967–2993

    Google Scholar 

  • Detragiache E, Gupta P, Tressel T (2008) Foreign banks in poor countries: theory and evidence. J Financ 63(5):2123–2160

    Google Scholar 

  • Dierkes M, Erner C, Langer T, Norden L (2013) Business credit information sparing and default risk of private firms. J Bank Financ 37(8):2867–2878

    Google Scholar 

  • Djankov S, La Porta R, Lopez-de-Silanes F, Shleifer A (2002) The regulation of entry. Q J Econ 117(1):1–35

    Google Scholar 

  • Djankov S, McLiesh C, Shleifer A (2007) Private credit in 129 countries. J Financ Econ 84(2):299–329

    Google Scholar 

  • Doblas-Madrid A, Minetti R (2012) Sharing information in the credit market: contract-level evidence from U.S. firms. J Financ Econ 109(1):198–223

    Google Scholar 

  • Dreher A, Gassebner M (2013) Greasing the wheels? The impact of regulations and corruption on firm entry. Public Choice 155(3–4):413–432

    Google Scholar 

  • Dutta N, Sobel R (2016) Does corruption ever help entrepreneurship? Small Bus Econ 47(1):179–199

    Google Scholar 

  • Feldman R (1997) Small business loans. Small Banks and a Big Change in Technology Called Credit Scoring. Federal Reserve Bank of Minneapolis’ The Region, September, pp 19–25

    Google Scholar 

  • Frame WS, Woosley L (2004) Credit scoring and the availability of small business credit in low-and moderate-income areas. Financ Rev 39(1):35–54

    Google Scholar 

  • Fratzscher M, König PJ, Lambert C (2016) Credit provision and banking stability after the great financial crisis: the role of bank regulation and the quality of governance. J Int Money Financ 66(1):113–135

    Google Scholar 

  • Gianetti M, Ongena S (2012) Lending by example: direct and indirect effects of foreign banks in emerging markets. J Int Econ 86(1):167–180

    Google Scholar 

  • Giannetti M, Ongena S (2009) Financial integration and firm performance: evidence from foreign bank entry in emerging markets. Rev Finance 13(2):181–223

    Google Scholar 

  • Giannetti M, Liberti J, Sturgess J (2016) Information sharing and rating manipulation. Working paper, Stockholm School of Economics

    Google Scholar 

  • Godlewski CJ, Weill L (2011) Does collateral help mitigate adverse selection? A cross-country analysis. J Financ Serv Res 40(1–2):49–78

    Google Scholar 

  • Gormley TA (2010) The impact of foreign bank entry in emerging markets: evidence from India. J Financ Intermed 19(1):26–51

    Google Scholar 

  • Grajzl P, Laptieva N (2016) Information sharing and the volume of private credit in transition: evidence from Ukrainian bank-level panel data. J Comp Econ 44(2):434–449

    Google Scholar 

  • Haselmann R, Pistor K, Vig V (2010) How law affects lending. Rev Financ Stud 23(2):549–580

    Google Scholar 

  • Havrylchyk O (2012) The effect of foreign bank presence on firm entry and exit in transition economies. J Bank Financ 36(6):1710–1721

    Google Scholar 

  • Houston JF, Lin C, Lin P, Ma Y (2010) Creditor rights, information sharing, and bank risk taking. J Financ Econ 96(3):485–512

    Google Scholar 

  • Jappelli T, Pagano M (2002) Information sharing, lending and defaults: cross-country evidence. J Bank Financ 26(10):2017–2045

    Google Scholar 

  • Kallberg JG, Udell GF (2003) The value of private sector business credit information sharing: the US case. J Bank Financ 27(3):449–469

    Google Scholar 

  • Klapper LF, Love I (2011a) Entrepreneurship and development: the role of information asymmetries. World Bank. Econ Rev 25(3):448-455

  • Klapper L, Love I (2011b) The impact of the financial crisis on new firm registration. Econ Lett 113(1):1–4

    Google Scholar 

  • Klapper L, Love I (2014) The impact of business environment reforms on new registrations of limited liability companies. World Bank Econ Rev 30(2):332–353

    Google Scholar 

  • Klapper L, Laevena L, Rajan R (2006) Entry regulation as a barrier to entrepreneurship. J Financ Econ 82(3):591–629

    Google Scholar 

  • Klapper L, Amit R, Guillen M (2010) Entrepreneurship and firm formation across countries. In: Joshua Lerner and Antoinette Shoar (ed) international differences in entrepreneurship. University of Chicago Press, Chicago

    Google Scholar 

  • Klapper L, Love I, Randall D (2015) New firm registration and the business cycle. Int Entrep Manag J 11(2):287–306

    Google Scholar 

  • Klein DB (1992) Promise keeping in the great society: a model of credit information sharing. Econ Polit 4(2):117–136

    Google Scholar 

  • Kouretas GP, Tsoumas C (2016) Foreign bank presence and business regulations. J Financ Stab 24:104–116

    Google Scholar 

  • Liberti JM, Mian AR (2009) Estimating the effect of hierarchies on information use. Rev Financ Stud 22(10):4057–4090

    Google Scholar 

  • Love I, Mylenko N (2003) Credit reporting and financing constraints. World Bank policy research working paper 3142

  • Love I, Zicchino L (2006) Financial development and dynamic investment behavior: evidence from panel VAR. Q Rev Econ Financ 46(2):190–210

    Google Scholar 

  • Love I, Martínez Pería MS, Singh S (2016) Collateral registries for movable assets: does their introduction spur firms’ access to Bank financing? J Financ Serv Res 49(1):1–37

    Google Scholar 

  • Lütkepohl H (2006) New introduction to multiple time series analysis. Springer, Berlin

    Google Scholar 

  • Martínez Pería MS and Singh S (2014) The impact of credit information sharing reforms on firm financing?. World Bank policy research working paper 7013

  • Mester L (1997) What’s the point of credit scoring?. Federal Reserve Bank of Philadelphia Business Review, pp 3–16

  • Mian A (2006) Distance constraints: the limits of foreign lending in poor economies. J Financ 61(3):1465–1505

    Google Scholar 

  • Moon J (2009) Small business finance and personal assets. Community Investments 39(3):9–10

    Google Scholar 

  • Nickell S (1996) Competition and corporate performance. J Polit Econ 104(4):724–746

    Google Scholar 

  • OECD (2010) Facilitating access to finance. Discussion Paper on Credit Information Sharing

  • Ongena, S., Popov, A. and Udell, G.F. (2013), When the cat's away the mice will play: does regulation at home affect bank risk-taking abroad?, J Financ Econ, 108(3), 727–750

  • Padilla JA, Pagano M (1997) Endogenous communication among lenders and entrepreneurial incentives. Rev Financ Stud 10(1):205–236

    Google Scholar 

  • Padilla JA, Pagano M (2000) Sharing default information as a borrower discipline device. Eur Econ Rev 44(10):1951–1980

    Google Scholar 

  • Pagano M, Jappelli T (1993) Information sharing in credit markets. J Financ 43(5):1693–1718

    Google Scholar 

  • Pennathur A, Vishwasrao S (2014) The financial crisis and bank–client relationships: foreign ownership, transparency, and portfolio selection. J Bank Financ 42(5):232–246

    Google Scholar 

  • Robb AM, Robinson DT (2013) The capital structure decisions of new firms. Rev Financ Stud 27(1):153–179

    Google Scholar 

  • Roodman D (2009) A note on the theme of too many instruments. Oxf Bull Econ Stat 71(1):135–158

    Google Scholar 

  • Schmalz MC, Sraer DA, Thesmar D (2013) Housing collateral and entrepreneurship. National Bureau of economic research working paper 19680

  • Sengupta R (2007) Foreign entry and Bank competition. J Financ Econ 84(2):502–528

    Google Scholar 

  • Siemer M (2014-2056) (2014) firm entry and employment dynamics during the great recession. FEDS Working paper, Federal Reserve Board

    Google Scholar 

  • Stein JC (2002) Information production and capital allocation: decentralized versus hierarchical firms. J Financ 57(5):1891–1921

    Google Scholar 

  • Stock JH, Yogo M (2005) Testing for weak instruments in linear IV regression. Identification and inference for econometric models: Essays in honor of Thomas Rothenberg, chap 5, pp 80–108

  • Tsai H, Chang Y, Hsiao PH (2011) What drives foreign expansion of the top 100 multinational banks? The role of credit reporting system. J Bank Financ 35(3):588–605

    Google Scholar 

  • Wennekers S, van Stel A, Thurik R, Reynolds P (2005) Nascent entrepreneurship and the level of economic development. Small Bus Econ 24(3):293–309

    Google Scholar 

  • Windmeijer F (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators. J Econ 126(1):25–51

    Google Scholar 

  • World Bank (2014) International committee on credit reporting: facilitating SME financing through improved credit reporting. World Bank Group, Washington, DC

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. University of Nottingham Trent, Burton Street, Nottingham, NG1 4BU, UK

    Theodora Bermpei

  2. Finance Centre, University of Essex, Wivenhoe Park, Colchester, CO4 3SQ, UK

    Theodora Bermpei

  3. University of Greenwich, Old Royal Naval College, Park Row, London, SE10 9LS, UK

    Antonios Nikolaos Kalyvas, Lorenzo Neri & Antonella Russo

  4. Department of Banking and Finance, University of Southampton, Building 2, 12 University Rd, Southampton, SO17 1BJ, UK

    Antonios Nikolaos Kalyvas

  5. Department of Management, Birkbeck, University of London, Malet Street, Bloomsbury, London, WC1E 7HX, UK

    Lorenzo Neri

Authors
  1. Theodora Bermpei
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Antonios Nikolaos Kalyvas
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Lorenzo Neri
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Antonella Russo
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Antonios Nikolaos Kalyvas.

Appendices

Appendix 1

Table 7 Countries included in the analysis. The selection of countries reflects the availability of the dependent and the explanatory variables of the analysis
Full size table

Appendix 2

Table 8 Correlation matrix of explanatory variables. lnFBAST is the ln of foreign bank assets over total bank assets, lnFBNUM is the ln of the number of foreign banks over the total number of banks, CR is creditor rights, DEPTH is depth of credit information sharing, lnGDPcap is the ln of GDP per capita in PPP terms, PSC is private sector credit to GDP, AGRIC is agriculture value added as % of GDP, FINFREE is financial freedom, BUSFREE is business freedom, FISCFREE is fiscal freedom, GOVFREE is freedom from government spending, C3 is the three largest banks concentration ratio of the banking industry of a country, REGWB is regulatory quality, INFDI is net FDI inflows, PBDUM is a dummy for the presence of a public credit registry, PVDUM is a dummy for the presence of a private credit bureau, DISCR is distance in terms of creditor rights, DISDEPTH is distance in terms of depth of credit information sharing, PROXCULT is cultural proximity, DISGEO is geographic distance
Full size table

Appendix 3. Additional information on the validity of instrumental variables

The findings in Table 5 demonstrate that the instrumental variables that measure foreign bank regulatory restrictions (RESFB) and foreign bank denied applications (DENBFB) have a negative and significant at the 1% level effect on the foreign bank presence variable (lnFBNUM). Here we provide evidence from fixed effect models that these instrumental variables (RESFB and DENFB) do not exert a statistically significant direct effect on our measures of entrepreneurship (lnNewentry and lnNascent). The models in Table A3 include also the other explanatory variables of entrepreneurship that we do not report in this table to economize space. We further validate the weak and not statistically significant relationship between the two instrumental variables and the two measures of entrepreneurships in panel VAR models.

Table 9 The effect of foreign bank regulatory restrictions (RESFB) and foreign bank application denial (DENFB) on entrepreneurship. The dependent variable in model 1 is the natural logarithm of the new firm entry rates (lnENT) from the World Bank Entrepreneurship Database. The dependent variable in model 2 is the natural logarithm of nascent entrepreneurship (lnNascent) from the Global Entrepreneurship Monitor. Both models are estimated with fixed effects
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Bermpei, T., Kalyvas, A.N., Neri, L. et al. Will Strangers Help you Enter? The Effect of Foreign Bank Presence on New Firm Entry. J Financ Serv Res 56, 1–38 (2019). https://doi.org/10.1007/s10693-017-0286-1

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10693-017-0286-1

Keywords

JEL Classification

Search

Navigation