Claessens, Stijn and van Horen, Neeltje (2009): Being a foreigner among domestic banks: Asset or liability?
Download (149Kb) | Preview
When do foreign banks have an advantage operating abroad and when not? Studying the performance of foreign banks in a large number of countries between 1999 and 2006, we find that this crucially depends on a number of factors. Specifically, foreign banks tend to perform better compared to domestic banks when coming from a high income country, but worse when coming from a developing country. Foreign banks tend to outperform domestic banks when competitiveness in the host country is limited. And foreign banks from source countries geographical or cultural close to the host country perform better than distant foreign banks. These findings show that it is important to control for heterogeneity among foreign banks when studying their performance and help reconcile some contradictory results found in the literature.
|Item Type:||MPRA Paper|
|Original Title:||Being a foreigner among domestic banks: Asset or liability?|
|Keywords:||foreign direct investment; international banking; performance; distance|
|Subjects:||F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Neeltje Van Horen|
|Date Deposited:||18. Feb 2009 09:52|
|Last Modified:||13. Feb 2013 07:06|
Aghion, Philippe and Peter Howitt, 1998, Endogenous Growth Theory, MIT Press: Cambridge and London.
Berger, Allen. N., 2007, “International Comparisons of Banking Efficiency,” Financial Markets, Institutions and Instruments, vol. 16, pp. 119-144.
Berger, Allen N., George R. G. Clarke, Robert Cull, Leora Klapper, and Gregory F. Udell. 2005. “Corporate Governance and Bank Performance: A Joint Analysis of the Static, Selection, and Dynamic Effects of Domestic, Foreign, and State Ownership.” Journal of Banking and Finance, vol. 29, pp. 2179–2221.
Berger, Allen N. and Robert DeYoung, 2001, “The Effects of Geographic Expansion on Bank Efficiency,” Journal of Financial Services Research, vol. 19, pp. 163-184.
Berger, Allen N. and Robert DeYoung, 2006, “Technological Progress and the Geographic Expansion of the Banking Industry,” Journal of Money, Credit and Banking, vol. 38, pp. 1483-1513.
Berger, Allen N., Robert DeYoung, Hesna Genay, and Gregory F. Udell, 2000, “The Globalization of Financial Institutions: Evidence from Cross-Border Banking Performance.” Brookings-Wharton Papers on Financial Services, vol. 3, pp. 23-158.
Berger, Allen N., Iftekhar Hasan, and Mingming Zhou, 2009, “Bank Ownership and Efficiency in China: WhatWill Happen in theWorld’s Largest Nation?” Journal of Banking and Finance, vol. 33, pp. 113-130.
Berger, Allen N., Leora F. Klapper, Gregory F. Udell, 2001, “The Ability of Banks to Lend to Informationally Opaque Small Businesses,” Journal of Banking and Finance, vol. 25, pp. 2127-2167.
Boot, Arnoud W.A. and Anjan V. Thakor, 1997, “Financial System Architecture,” Review of Financial Studies, vol. 10, pp. 693-733.
Boyd, John H. and Edward C. Prescott, 1986, “Financial Intermediary-Coalitions,” Journal of Economic Theory, vol. 38, pp. 211-232.
Buch, Claudia M. 2003. “Information or Regulation: What Drives the International Activities of Commercial Banks?” Journal of Money, Credit, and Banking, vol. 35, pp.851-869. Buch, Claudia M. and Gayle DeLong, 2004, “Cross-border Bank Mergers: What Lures the Rare Animal?” Journal of Banking and Finance, vol. 28, pp. 2077-2102.
Claessens, Stijn, Aslı Demirgüç-Kunt, and Harry Huizinga, 2001, How Does Foreign Entry Affect the Domestic Banking Market?” Journal of Banking and Finance, vol. 25, pp. 891–911.
Claessens, Stijn and Luc Laeven, 2004, “What Drives Bank Competition? Some International Evidence,” Journal of Money, Credit and Banking, vol. 36, pp. 563-583.
Claessens, Stijn and Neeltje van Horen, 2008, “Location Decisions of Foreign Banks and Institutional Competitive Advantage,” DNB Working Paper No. 172.
Claessens, Stijn, Neeltje Van Horen, Tugba Gurcanlar and Joaquin Mercado, 2008, Foreign Bank Presence in Developing Countries 1995-2006: Data and Trends, mimeo, The World Bank, Washington, D.C.
Clarke, George, Cull, Robert, Maria Soledad Martinez Peria, and Susana M. Sánchez, 2003, “Foreign Bank Entry: Experience, Implications for Developing Countries, and Agenda for Further Research,” World Bank Research Observer, vol. 18, pp. 25-40.
Correa, Ricardo, 2008, Cross-border Bank Acquisitions: Is there a Performance Effect? International Finance Discussion Papers No. 922, Board of Governors of the Federal Reserve System.
Coval, Joshua D. and Tobias J. Moskowitz, 2001, “The Geography of Investment: Informed Trading and Asset Prices,” Journal of Political Economy, vol. 109, pp. 811-841.
Crystal, Jennifer S., B. Gerard Dages, and Linda S. Goldberg, 2001, “Does Foreign Ownership Contribute to Sounder Banks? The Latin American Experience,” in Robert E. Litan, Paul Masson and Michael Pomerleano (eds.): Open Doors: Foreign Participation in Emerging Financial Systems, Brookings Press, pp. 217-266.
DeGryse, Hans and Steven Ongena, 2005, “Distance, Lending Relationships, and Competition,” Journal of Finance, vol. 60, pp. 231-265.
DeYoung, Robert and Daniel E. Nolle. 1996. “Foreign-Owned Banks in the U.S.: Earning Market Share or Buying It?” Journal of Money, Credit, and Banking, vol. 28, pp. 622–636.
Diamond, Douglas W., 1984, “Financial Intermediation and Delegated Monitoring,” Review of Economic Studies, vol. 51, pp. 393-414.
Grosse, Robert and Lawrence G. Goldberg, 1991, “Foreign Bank Activity in the United States: An Analysis by Country of Origin,” Journal of Banking and Finance, vol. 22, pp. 1093-1112.
Grigorian, David A and Vlad Manole, 2006, “Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis,” Comparative Economic Studies, vol. 48, pp. 497-522.
Hasan, Iftekhar and Ana Lozano-Vivas, 1998, “Foreign Banks, Production Technology, and Efficiency: Spanish Experience.” Unpublished paper presented at the Georgia Productivity Workshop III, Athens, Georgia.
Hauswald, Robert and Robert Marquez, 2006, “Competition and Strategic Information Acquisition in Credit Markets,” Review of Financial Studies, vol. 19, 99. 967-1000.
Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi, 2008, “Governance Matters VII: Aggregate and Individual Governance Indicators, 1996-2007,” World Bank Policy Research Working Paper No 4654.
Mahajan, Arvind, Nanda Rangan, and Asghar Zardkoohi. 1996. “Cost Structures in Multinational and Domestic Banking.” Journal of Banking and Finance vol. 20, pp. 238-306.
Majnoni, Giovanni, Rashmi Shankar, and Eva Varhegyi, 2003, “The Dynamics of Foreign Bank Ownership – Evidence from Hungary,” World Bank Policy Research Working Paper No. 3114.
Mian, Atif, 2003, “Foreign, Private Domestic and Government Banks: New Evidence from Emerging Markets,” Mimeo, University of Chicago.
Mian, Atif, 2006, “Distance Constraints: The Limits of Foreign Lending in Poor Countries,” Journal of Finance, vol. 61, pp. 1465–1505.
Micco, Alejandro, Ugo Panizza, and Monica Yanez, 2007, “Bank Ownership and Performance: Does Politics Matter?” Journal of Banking and Finance, vol. 31, pp.219-241.
Miller, S. R. and A. Parkhe, 2002, “Is There a Liability of Foreignness in Global Banking? An Empirical Test of U.S. Banks’ X-Efficiency.” Strategic Management Journal, vol. 23, pp. 55-75.
Nikiel, Ewa M and Timothy P. Opiela, 2002, “Customer Type and Bank Efficiency in Poland Implication for Emerging Market Banking,” Contemporary Economic Policy, vol. 20, pp. 255-271.
Panzar, John C. and James N. Rosse, 1987, “Testing for Monoploy’ Equilibrium,” Journal of Industrial Economics, vol. 35, pp. 443-456.
Stein, Jeremy, 2002, “Information Production and Capital Allocation: Decentralized versus Hierarchical Firms,” Journal of Finance, vol. 57, pp. 1891-1921.
Sturm, Jan-Egbert. and Barry Williams. 2004. “Foreign Bank Entry, Deregulation and Bank Efficiency: Lessons from the Australian Experience.” Journal of Banking and Finance, vol. 28, pp. 1775–1799.
Vander Vennet, Rudi, 1996, “The Effect of Mergers and Acquisitions on the Efficiency and Profitability of EC Credit Institutions,” Journal of Banking and Finance, vol. 20, pp. 1531–58.
Yildirim, H. Semih and George C. Philippatos, 2007, “Efficiency of Banks: Recent Evidence from the Transition Economies of Europe, 1993–2000,” European Journal of Finance, vol. 31, pp.123–143.
Available Versions of this Item
- Being a foreigner among domestic banks: Asset or liability? (deposited 18. Feb 2009 09:52) [Currently Displayed]