Cause or Coincidence? The Timing of Market Entry among Foreign Banks in Tokyo and Shanghai

Abstract

The likelihood of market entry tends to increase after an organization enters, for two reasons. First, other organizations that react to the same market opportunity (i.e. a common cause) become likely to enter. Second, other organizations that imitate the first organization become likely to enter. We develop theory on how the effect of common causes and imitation on new market entry varies over time. We hypothesize that, relative to a prior entry, the common cause effect occurs earlier in time than the imitation effect. We conduct two empirical tests using data on foreign banks entry into East-Asia. Piecewise-constant hazard models reveal a decreasing trend, but with a spike in the pattern occurring after a number of months, broadly supportive of our theoretical arguments.