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Do Banks Benefit from Internationalization? Revisiting the Market Power--Risk Nexus

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  • Claudia M. Buch
  • Cathérine T. Koch
  • Michael Koetter

Abstract

We analyze the impact of bank internationalization on domestic market power (Lerner index) and risk for German banks. Risk is measured by the official declaration of regulatory authorities that a bank is distressed. We distinguish the volume of foreign assets, the number of foreign countries, and different modes of foreign entry. Our analysis has three main results. First, higher market power is associated with lower risk. Second, holding assets in many countries reduce market power at home, but banks with a higher share of foreign assets exhibit higher market power. Third, bank internationalization is only weakly related to bank risk. Copyright 2013, Oxford University Press.

Suggested Citation

  • Claudia M. Buch & Cathérine T. Koch & Michael Koetter, 2013. "Do Banks Benefit from Internationalization? Revisiting the Market Power--Risk Nexus," Review of Finance, European Finance Association, vol. 17(4), pages 1401-1435.
    • Handle: RePEc:oup:revfin:v:17:y:2013:i:4:p:1401-1435
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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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    1. Do Banks Benefit from Internationalization? Revisiting the Market Power–Risk Nexus (Review of Finance 2013) in ReplicationWiki

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