Claessens, Stijn and van Horen, Neeltje (2009): Being a foreigner among domestic banks: Asset or liability?
This is the latest version of this item.
Download (107kB) | Preview
Do foreign banks have an advantage operating abroad? The existing literature has come up with different answers. Studying the performance of foreign banks relative to domestic banks in a large number of countries between 1999 and 2006, we find that the answer importantly depends on a number of factors. Specifically, foreign banks tend to perform better when from a high income country and when competition in the host country is limited. They also perform better when they are large and rely more on deposits for funding. Foreign banks improve their performance over time, possibly as they adapt to the local institutional environment. Foreign banks from home countries geographical or cultural close to the host country perform better than distant foreign banks. Institutional familiarity, however, does not help (improve) foreign banks’ performance. 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:||20. Oct 2009 08:59|
|Last Modified:||09. Jan 2014 16:08|
Aghion, Philippe and Peter Howitt, 1998, Endogenous Growth Theory, MIT Press: Cambridge and London.
Barajas, Adolfo, Roberto Steiner, and Natalia Salazar, 2000, “The Impact of Liberalization and Foreign Investment in Colombia’s Financial Sector,” Journal of Development Economics, vol. 63(1), pp. 157-96.
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, “Globalization of Financial Institutions: Evidence from Cross-Border Banking Performance,” Brookings-Wharton Papers on Financial Services, vol. 3, pp. 23-158.
Berger, Allen N., Hasan Iftekhar and Mingming Zhou, 2009, “Bank Ownership and Efficiency in China: What Will Happen in the World’s Largest Nation?” Journal of Banking and Finance, vol. 33, pp. 113-130.
Berger, Allen N., and David B. Humphrey 1997. “Efficiency of Financial Institutions: International Survey and Review,” European Journal of Operational Research 98 (April 1997): 175-212.
Berger, Allen N., Leora F. Klapper, and 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.
Berger, Allen N. and Loretta J. Mester, 1997, Inside the black box: What explains differences with efficiency of financial institutions?, Journal of Banking and Finance 21 (1997), pp. 895–947.
Bonaccorsi di Patti, Emilia and Daniel C. Hardy, 2005, “Bank Reform and Bank Efficiency in Pakistan,” Journal of Banking and Finance, 29, pp. 2381-2406.
Bonin, John P., Hasan Iftekhar and Paul Wachtel, 2005, “Bank Performance, Efficiency and Ownership in Transition Countries,” Journal of Banking and Finance, vol. 29, pp. 31-53.
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.
Chang, Edward C., Iftekhar Hasan, and William C. Hunter, 1998, “Efficiency of Multinational Banks: An Empirical Investigation,” Applied Financial Economics, vol. 8, pp. 689-696.
Chantapong, Saovanee, 2005, “Comparative Study of Domestic and Foreign Bank Performance in Thailand: The Regression Analysis,” Economic Change and Restructuring, vol. 38(1), pp. 63-83.
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, Robert Cull, 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.
Dages, B. Gerard, Linda Goldberg, and Daniel Kinney, 2000, “Foreign and Domestic Bank Participation in Emerging Markets: Lessons from Mexico and Argentina,” Federal Reserve Bank of New York Economic Policy Review, vol. 6(3), pp. 17-36.
DeGryse, Hans and Steven Ongena, 2005, “Distance, Lending Relationships, and Competition,” Journal of Finance, vol. 60, pp. 231-265.
Detragiache, Enrica and Poonam Gupta, 2006, “Foreign Banks in Emerging Market Crises: Evidence from Malaysia,” Journal of Financial Stability, vol. 2(3), pp. 217-42.
DeYoung, Robert and Daniel E. Nolle, 1996, “Foreign-Owned Banks in the United States : 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.
Galindo, Arturo, Alejandro Micco and César Manuel Serra, 2003. “Better the Devil that You Know: Evidence on Entry Costs Faced by Foreign Banks,” RES Working Papers 4313, Inter-American Development Bank, Research Department, Washington, D.C.
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.
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.
Hasan, Iftekhar and Katherin Marton, 2003, “Development and Efficiency of the Banking Sector in a Transitional Economy: Hungarian Experience,” Journal of Banking and Finance, vol. 27(12), pp. 2249-71.
Hauswald, Robert and Robert Marquez, 2006, “Competition and Strategic Information Acquisition in Credit Markets,” Review of Financial Studies, vol. 19(3), pp. 967-1000.
Havrylchyk, Olena and Emilia Jurzyk, 2005, “Profitability of Foreign and Domestic Banks in Central and Eastern Europe: does the Mode of Entry Matter?,” CEPPI Working Paper No. 2005-21.
Havrylchyk, Olena, 2006, “Efficiency of the Polish Banking Industry: Foreign versus Domestic Banks,” Journal of Banking & Finance, vol. 30, pp. 1975–1996.
Jemric, Igor and Boris Vujcic, 2002, “Efficiency of Banks in Croatia: A DEA Approach,” Comparative Economic Studies, 2002, vol. 44(2-3), pp. 169-93.
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.
Kraft, Evan, Richard Hofler and James Payne, 2006, “Privatization, Foreign Bank Entry and Bank Efficiency in Croatia: a Fourier-flexible Function Stochastic Cost Frontier Analysis,” Applied Economics, vol. 38, pp. 2075–2088.
Laeven, Luc and Ross Levine, 2008, “Complex Ownership Structures and Corporate Valuations,” Review of Financial Studies, vol. 21(2), pp. 579–604.
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.
Matthews, Kent and Mahadzir Ismail, 2006, “Efficiency and Productivity Growth of Domestic and Foreign Commercial Banks in Malaysia,” Cardiff Economics Working Papers No. E2006/2.
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.
Mihaljek, Dubravko, 2006, “Privatisation, Consolidation, and the Increased Role of Foreign Banks,” in “The Banking System in Emerging Economies: How Much Progress Has Been Made?” BIS Papers, no. 28, pp. 41-66.
Miller, Stewart R. and Arvind 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.
Miller, Stewart R. and Malika Richards, 2002, “Liability of Foreignness and Membership in a Regional Economic Group: Analysis of the European Union,” Journal of International Management, vol. 8, pp. 323–337.
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 Monopoly’ Equilibrium,” Journal of Industrial Economics, vol. 35, pp. 443-456.
Peek, Joe, Eric S. Rosengren and Faith Kasirye, 1999, “The Poor Performance of Foreign Bank Subsidiaries: Were the Problems Acquired or Created?” Journal of Banking and Finance, vol. 23, pp. 579-604.
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.
Vander Vennet, Rudi, 2002, “Cross-border Mergers in European Banking and Bank Efficiency,” Foreign Direct Investment in the Real and Financial Sector of Industrial Countries, pp. 295-315, Heidelberg and New York: Springer.
Weill, Laurent, 2003, “Banking Efficiency in Transition Economies: the Role of Foreign Ownership,” Economics of Transition, vol. 11(3), pp. 569-592.
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)
- Being a foreigner among domestic banks: Asset or liability? (deposited 20. Oct 2009 08:59) [Currently Displayed]