Market Reaction to the Formation of Export Trading Companies by American Banks
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INTRODUCTION In 1982, the United States Congress passed the Export Trading Company (ETC) Act to encourage the formation of Export Trading Companies (ETCs) in order to promote American exports.1 Under Title II of the Act, the Bank ExportServices Act (BESA), bank holding companies were allowed to acquire equity interests in ETCs. By allowing bank ETC subsidiaries to become principals in international commercial activities by taking title to export shipments, the passage of the BESA representeda significant departure from the longstanding North American policy of separating banking and commercial activities. According to Meyer [1982], this easing of the separation should allow the banks to enter a potentially very profitable new form of business where the role of the banks is vital due to theirfinancial resources, international marketing networks and trading experience. De Noble and *LawrenceKryzanowskiis Professorof FinanceatConcordiaUniversityin Montreal. His researchinterestsincludefinancialinstitutionsandmarketsfrombotha domestic andglobalperspective.He has publishednumerousbooks,articlesandmonographs, includingExport Consortia:A Canadian Perspective and Countertrade:A Canadian Perspective.
**NancyUrsel is AssistantProfessorof Financeat the Universityof Windsor.Her researchinterestsarecorporatefinanceandderegulationof financialservices,both in a domesticand internationalsetting. An earlier version of this paper was presented at the 1991 meeting of the Administrative Sciences Association of Canada. The authors wish to thank A. Jalilvand, A. Nathan, G. Roberts, C.W. Sealey, M.C. To, and three anonymous JIBS referees for helpful comments. Financial support from FCAR (Fonds pour la formation de chercheurset l'aide a la recherche), SSHRC (Social Sciences and Humanities Research Council of Canada)and the University of Windsor Research Board are gratefully acknowledged. All remaining errors are the authors' responsibility. Received: February 1992; Revised: September 1992; Accepted: September 1992.
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JOURNAL OF INTERNATIONALBUSINESS STUDIES, SECOND QUARTER 1993
Belch [1986] found that the officers of financial institutions involved in ETCs were interested in the marketing-drivenpossibilities of such associations because of their enhanced abilities to service new and existing clients. The experience in many other countries is quite different than in the United States. Japanhas a long history of very successful tradingcompanies, most of which are closely associated with a majorbank.In Brazil, the two governmentinitiated trading houses, COBEC (Companhai Brasiliera do Entrepostos e Comercio) and Petrobas, have strong ties to the central bank. Specifically, 30% of the former's shares are held by the central bank of Brazil; whereas, the latter is a 100%-owned subsidiary of the national oil company, which provides it with direct access to central bank financing
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