Do reforms in transition economies affect foreign bank entry?

Using a newly developed database for 8 transition economies, this paper examines whether reforms and political freedom are important for foreign bank entry. The paper provides strong evidence that foreign bank entry positively responds to reform measures. We also find some evidence for the importance of political freedom. The size of the financial sector and the openness of a country appear to be important determinants of a country\'s willingness to attract foreign banks. Moreover, we find that reforms significantly affect foreign bank entry via the efficiency of the financial sector, the structure of the financial sector and by stimulating domestic investment.