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The Nexus between Bank Foreign Expansion and Efficiency: The Moderating Effects of Host Country Regulation and Competition

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  • Yijia Song
  • Xingda Chen
  • Xitao Li
  • Mingyue Zhang

Abstract

Does Chinese bank efficiency benefit or suffer from foreign expansion? To investigate the causal relationship between banks foreign expansion and efficiency, we analyze 431 overseas branches of Chinese banks from 2007 to 2020. After decomposing the efficiency, we find strong, consistent evidence that such foreign expansion reduces cost efficiency due to the agency problem, while improving profit efficiency to retain the long-term bank–client relationship. Furthermore, to examine moderating effects, we consider regulations and competition among host countries. Ultimately, stringent regulations and less competition are found to be key factors impacting the loss and gain of cost and profit efficiency.

Suggested Citation

  • Yijia Song & Xingda Chen & Xitao Li & Mingyue Zhang, 2022. "The Nexus between Bank Foreign Expansion and Efficiency: The Moderating Effects of Host Country Regulation and Competition," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(12), pages 3377-3394, September.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:12:p:3377-3394
    DOI: 10.1080/1540496X.2022.2045941
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    Cited by:

    1. Yildirim, Canan & Kasman, Adnan & Gulamhussen, Mohamed Azzim, 2023. "Efficiency of multinational banks: Impacts of geographic and product loci," International Business Review, Elsevier, vol. 32(5).

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