Does information sharing matter?: cross-country evidence on foreign banks
Date
2017
Authors
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Publisher
University of Delaware
Abstract
I investigate how the existence of an information sharing institution affects credit in countries with varying levels of foreign bank presence. Using extensive individual- and firm-level data for over 90 countries, I find that a higher level of foreign bank presence reduces the probability that a firm or individual has a loan. An increase in foreign bank presence also results in unfavorable interest rates, higher collateral requirements and lower overall firm access to credit. A one percent increase in foreign bank presence also increases the likelihood that a firm’s application for a loan is rejected. This implies that foreign bank entry results in a reduction in competition in the banking sector due to acquisition of domestic institutions, reducing individual and firm access to credit. However, I find that information sharing through a private credit bureau or public credit registry partially offsets the negative effect of foreign bank presence on credit. This magnitude of this offsetting effect varies with the level of foreign bank presence, the type of loan and the ownership structure of the information sharing institution. These results are robust to the inclusion of firm- and individual-level control variables.