The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Multiple versus Single Banking Relationships: Theory and Evidence
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00243
Enrica Detragiache, Paolo Garella, Luigi Guiso
A theory of the optimal number of banking relationships is developed and tested using matched bank‐firm data. According to the theory, relationship banks may be unable to continue funding profitable projects owing to internal problems and a firm may thus have to refinance from nonrelationship banks. The latter, however, face an adverse selection problem, as they do not know the quality of the project, and may refuse to lend. In these circumstances, multiple banking can reduce the probability of an early liquidation of the project. The empirical evidence supports the predictions of the model.
Foreign Banks in Poor Countries: Theory and Evidence
Published: 09/10/2008 | DOI: 10.1111/j.1540-6261.2008.01392.x
ENRICA DETRAGIACHE, THIERRY TRESSEL, POONAM GUPTA
We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when domestic banks are better than foreign banks at monitoring soft information customers, foreign bank entry may hurt these customers and worsen welfare. The model also predicts that credit to the private sector should be lower in countries with more foreign bank penetration, and that foreign banks should have a less risky loan portfolio. In the empirical section, we test these predictions for a sample of lower income countries and find support for the theoretical model.