After a long review process, my paper with Vasso Ioannidou and Larissa Schaefer has been finally accepted
by Management Science. While the initial findings with which we started five years ago still stand, lots of additional tests have strengthened the robustness of the findings and - courtesy of review process – we managed to put the results much better
into the literature. Our paper – using loan-level credit registry data from Bolivia – explores differences in foreign and domestic banks’ credit contract terms and pricing models Previous work has shown
that the clienteles of foreign and domestic banks are different (as, e.g., by Atif Mian for Pakistan). We rather look at differences in loan conditionality across banks when they lend to the same clients in the same month. We find that foreign
banks are more likely to demand the pledging of collateral and give shorter maturity loans. There is also some evidence that foreign banks provide loans at a lower interest rate, though this result is somewhat less robust. A second finding is that foreign
banks rely more on hard information than domestic banks. Together this suggests that foreign banks can overcome distance–related information constraints by focusing on hard assets and hard information as well as the disciplining tool of shorter
maturity. However, we also show that there are limitations, with foreign banks facing higher default rates and lower returns on lending if not using collateral and short maturity as disciplining tools.