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Country Characteristics in Foreign Bank Investments and Risk Taking: The Role of Shared Culture, Common Institutions and Geographic Proximity

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  • Ann L. Owen
  • Judit Temesvary

Abstract

type="main" xml:lang="en"> We examine country characteristics in foreign bilateral banking relationships and explore how shared cultural heritage, common institutions and geographic proximity are related to banks’ foreign investment choices. Using a newly compiled data set on BIS-reporting banks’ activities, we find that proximity and common institutional arrangements are the primary correlates of bilateral bank portfolio allocations. Information flow as measured by cross-country phone calls is also strongly correlated with foreign bank investment, though the direction of causation is unclear. Trust between individuals in the two countries matters only as a proxy for other cultural similarities that are embedded in historical colonial relationships. We also find that the relationship between cross-country bank regulatory differences and bank investments has changed in the aftermath of the financial crisis.

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  • Ann L. Owen & Judit Temesvary, 2015. "Country Characteristics in Foreign Bank Investments and Risk Taking: The Role of Shared Culture, Common Institutions and Geographic Proximity," International Finance, Wiley Blackwell, vol. 18(2), pages 227-248, June.
  • Handle: RePEc:bla:intfin:v:18:y:2015:i:2:p:227-248
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    Cited by:

    1. Schneider, Claudia R. & Fehrenbacher, Dennis D. & Weber, Elke U., 2017. "Catch me if I fall: Cross-national differences in willingness to take financial risks as a function of social and state ‘cushioning’," International Business Review, Elsevier, vol. 26(6), pages 1023-1033.

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