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Locational concentration and institutional diversification: Evidence from foreign direct investments in the banking industry

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  • Han, I
  • Liang, Hsin-Yu
  • Chan, Kam C.

Abstract

We study locational concentration and institutional diversification strategies in the context of foreign direct investment based on Dunning’s eclectic paradigm in the banking industry. We report that locational concentration and institutional diversification strategies can enhance multinational bank return independently and simultaneously. Further, we document that locational concentration increases operational risk, while an institutional diversification strategy reduces this risk for a multinational bank. Our findings suggest that even when concentrating in a limited number of geographic locations, it is preferable to select more institutionally dissimilar countries. Overall, we conclude that multinational banks can achieve better performance by focusing on either locational concentration or institutional diversification, or a combination of both.

Suggested Citation

  • Han, I & Liang, Hsin-Yu & Chan, Kam C., 2016. "Locational concentration and institutional diversification: Evidence from foreign direct investments in the banking industry," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 185-199.
    • Handle: RePEc:eee:ecofin:v:38:y:2016:i:c:p:185-199
    DOI: 10.1016/j.najef.2016.10.013
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    More about this item

    Keywords

    Location strategy; Location of foreign direct investments; Eclectic paradigm; Multinational bank performance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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