Foreign bank entry and performance of domestic SMEs: evidence from Korea

We examine whether foreign bank entry enhances the performance of small and medium-sized enterprises (SMEs) in Korea. Using panel data on Korean firms from 1991 to 2019, we first confirm that foreign banks positively influence the amount of bank loans received by Korean SMEs, suggesting that their entry contributes to improving SMEs’ credit access. Additionally, the positive impact of foreign bank entry is more pronounced for SMEs characterized by high information asymmetry and strong growth potential. Further, improved credit access through foreign banks is positively associated with the long-term performance of SMEs. Overall, our study highlights the importance of foreign banks for improving both credit access and the performance of domestic SMEs in a transition economy.