Does Mode of Foreign Entry Affect Profitability Dynamics? An Evidence from the Turkish Banking Sector

This paper analyzes the effect of foreign entry on the profitability of the Turkish banks by panel estimation models. The dependent variable is net return on assets and net return on equity, which are used interchangeably to measure profitability. The independent variables are composed of bank-specific variables as well as host-country and global factors. In the benchmark model, the effect of foreign entry is captured by dummy variables that classify banks according to their foreign share content, whereas in the alternative model, the estimations are conducted seperately for each mode of foreign entry category. Additionally, the analysis is repeated individually for the periods before and after the global crisis. Estimation results suggest that the significance of the explanatory variables changes depending on the foreign share content. Also, bank-specific variables and global factors are more important, while host-country factors are less important after the global crisis. For future work, other explanatory variables may be added to capture features peculiar to mode of foreign entry. Furthermore, certain variables may be included to seize developments in parent banks’ countries, which might affect subsidiary banks. Finally, other bank-specific variables like measures on administrative structure may be useful in estimations.