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Being a foreigner among domestic banks: Asset or liability?

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  • Claessens, Stijn
  • van Horen, Neeltje

Abstract

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13467.

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Date of creation: Mar 2009
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Handle: RePEc:pra:mprapa:13467

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Keywords: foreign direct investment; international banking; performance; distance;

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Cited by:
  1. Huizinga, H.P. & Voget, J. & Wagner, W.B., 2011. "International Taxation and Cross-Border Banking," Discussion Paper, Tilburg University, Center for Economic Research 2011-066, Tilburg University, Center for Economic Research.
  2. 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," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 372-392.
  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, CASE-Center for Social and Economic Research 0452, CASE-Center for Social and Economic Research.
  4. 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.
  5. Sufian, Fadzlan & Habibullah, Muzafar Shah, 2012. "Globalizations and bank performance in China," Research in International Business and Finance, Elsevier, Elsevier, vol. 26(2), pages 221-239.
  6. Hryckiewicz, Aneta & Kowalewski, Oskar, 2010. "Economic determinates, financial crisis and entry modes of foreign banks into emerging markets," Emerging Markets Review, Elsevier, Elsevier, vol. 11(3), pages 205-228, September.
  7. 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, Elsevier, vol. 35(4), pages 819-839, April.
  8. 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.
  9. Amighini, Alessia A. & Franco, Chiara, 2013. "A sector perspective on Chinese outward FDI: The automotive case," China Economic Review, Elsevier, Elsevier, vol. 27(C), pages 148-161.
  10. Sturm, Jan-Egbert & Williams, Barry, 2010. "What determines differences in foreign bank efficiency? Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 20(3), pages 284-309, July.
  11. Kiyota, Hiroyuki, 2011. "Efficiency of Commercial Banks in Sub-Saharan Africa: A Comparative Analysis of Domestic and Foreign Banks," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  12. Pennathur, Anita & Vishwasrao, Sharmila, 2014. "The financial crisis and bank–client relationships: Foreign ownership, transparency, and portfolio selection," Journal of Banking & Finance, Elsevier, Elsevier, vol. 42(C), pages 232-246.

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