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How organizational and geographic complexity influence performance: Evidence from European banks

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  • Nyola, Annick Pamen
  • Sauviat, Alain
  • Tarazi, Amine
  • Danisman, Gamze Ozturk

Abstract

We empirically investigate how bank internationalization, organizational complexity, and geographical complexity stemming from foreign-affiliate type and geographic dispersion affect parent bank stability and profitability. We base our analysis on unique, hand-collected data for the worldwide locations of subsidiaries and branches of EU banks. Our results show that internationalization benefits bank stability by reducing default risk, and it is significantly associated with lower earnings volatility but poorer profitability. With regard to foreign organizational complexity, banks with both foreign subsidiaries and foreign branches are more stable than banks with foreign branches exclusively, which are more stable than banks with only foreign subsidiaries. Nevertheless, higher geographic complexity is associated with lower default risk, higher volatility in earnings, and higher profitability. Further investigations on the sovereign debt crisis and bank size indicate that the sovereign debt crisis in 2011 amplified the relationship and our findings mainly hold for small banks.

Suggested Citation

  • Nyola, Annick Pamen & Sauviat, Alain & Tarazi, Amine & Danisman, Gamze Ozturk, 2021. "How organizational and geographic complexity influence performance: Evidence from European banks," Journal of Financial Stability, Elsevier, vol. 55(C).
  • Handle: RePEc:eee:finsta:v:55:y:2021:i:c:s1572308921000541
    DOI: 10.1016/j.jfs.2021.100894
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    More about this item

    Keywords

    Internationalization; Foreign organizational complexity; Geographical complexity; Bank stability; Bank profitability;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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