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Being a foreigner among domestic banks: Asset or liability?

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Author Info
Claessens, Stijn
van Horen, Neeltje

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Abstract

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.

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

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

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

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  15. Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August. [Downloadable!] (restricted)
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