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Being a foreigner among domestic banks: Asset or liability?

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  • Claessens, Stijn
  • van Horen, Neeltje

Abstract

Do foreign banks perform better than domestic banks? The existing literature has come up with different answers, in part as data coverage has varied and often been limited. Studying the performance of foreign relative to domestic banks in many 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 regulation in the host country is relatively weak. They also perform better when larger and having a bigger market share. Foreign banks from home countries with the same language and similar regulation as the host country also perform better. Geographical closeness, however, does not improve 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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 5 ()
Pages: 1276-1290

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1276-1290

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Foreign direct investment; International banking; Performance;

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References

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Cited by:
  1. Pennathur, Anita & Vishwasrao, Sharmila, 2014. "The financial crisis and bank–client relationships: Foreign ownership, transparency, and portfolio selection," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 232-246.
  2. Sufian, Fadzlan & Habibullah, Muzafar Shah, 2012. "Globalizations and bank performance in China," Research in International Business and Finance, Elsevier, vol. 26(2), pages 221-239.
  3. Georgios Efthyvoulou & Canan Yildirim, 2013. "Market Power in CEE Banking Sectors and the Impact of the Global Financial Crisis," CASE Network Studies and Analyses 0452, CASE-Center for Social and Economic Research.
  4. Clarke, George R.G. & Cull, Robert & Kisunko, Gregory, 2012. "External finance and firm survival in the aftermath of the crisis : evidence from Eastern Europe and Central Asia," Policy Research Working Paper Series 6050, The World Bank.
  5. Amighini, Alessia A. & Franco, Chiara, 2013. "A sector perspective on Chinese outward FDI: The automotive case," China Economic Review, Elsevier, vol. 27(C), pages 148-161.
  6. Jan-Egbert Sturm & Barry Williams, 2005. "What Determines Differences in Foreign Bank Efficiency? Australian Evidence," CESifo Working Paper Series 1587, CESifo Group Munich.
  7. Cihak, Martin & Demirguc-Kunt, Asli & Feyen, Erik & Levine, Ross, 2012. "Benchmarking financial systems around the world," Policy Research Working Paper Series 6175, The World Bank.
  8. Harry Huizinga & Johannes Voget & Wolf Wagner, 2012. "International Taxation and Cross-Border Banking," Working Papers 1225, Oxford University Centre for Business Taxation.
  9. Cull, Robert & Xu, L. Colin, 2011. "Job growth and finance : are some financial institutions better suited to early stages of development than others?," Policy Research Working Paper Series 5880, The World Bank.
  10. Kiyota, Hiroyuki, 2011. "Efficiency of Commercial Banks in Sub-Saharan Africa: A Comparative Analysis of Domestic and Foreign Banks," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  11. Chen, Sheng-Hung & Liao, Chien-Chang, 2011. "Are foreign banks more profitable than domestic banks? Home- and host-country effects of banking market structure, governance, and supervision," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 819-839, April.
  12. Hryckiewicz, Aneta & Kowalewski, Oskar, 2010. "Economic determinates, financial crisis and entry modes of foreign banks into emerging markets," Emerging Markets Review, Elsevier, vol. 11(3), pages 205-228, September.

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