Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe

Author/Editor:

Emilia M Jurzyk ; Olena Havrylchyk

Publication Date:

January 1, 2010

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Using a combination of propensity score matching and difference-in-difference techniques we investigate the impact of foreign bank ownership on the performance and market power of acquired banks operating in Central and Eastern Europe. This approach allows us to control for selection bias as larger but less profitable banks were more likely to be acquired by foreign investors. We show that during three years after the takeover, banks have become more profitable due to cost minimization and better risk management. They have additionally gained market share, because they passed their lower cost of funds to borrowers in terms of lower lending rates. Previous studies failed to pick up the improvements in performance of takeover banks, because they did not account for the performance of financial institutions before acquisitions.

Series:

Working Paper No. 10/4

Subject:

English

Publication Date:

January 1, 2010

ISBN/ISSN:

9781451961713/1018-5941

Stock No:

WPIEA2010004

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

41

Please address any questions about this title to publications@imf.org