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Foreign Bank Entry And Credit Allocation In Emerging Markets

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Executive Summary

This paper employees a unique data set containing bank-specific information to explore how foreign bank entry determines credit allocation in emerging markets. The author investigates the impact of the mode of foreign entry (greenfield or takeover) on banks' portfolio allocation to borrowers with different degrees of informational transparency, as well as by maturities and currencies. The impact of foreign entry on credit allocation may stem from the superior performance of foreign entrants ("Performance hypothesis"), or reflect borrower informational capture ("Portfolio composition hypothesis").

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