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Explaining the profitability of foreign banks in Shanghai

  • M.K. Leung

    (Department of Business Studies, Hong Kong Polytechnic University, People's Republic of China)

  • T. Young

    (School of Economic Studies, University of Manchester, UK)

  • D. Rigby

    (Department of Business Studies, Hong Kong Polytechnic University, People's Republic of China)

This paper uses survival analysis to examine the factors determining the time taken for branches of foreign banks in Shanghai, China to make a positive rate of return after entering that market. Particular attributes of banks including the parent bank's size, early entry and the number of branches the bank has in China are found to reduce time to profitability. Market conditions in Shanghai, captured by levels of foreign direct investment and Eurodollar interest rates, are also found to have significant effects. A number of managerial implications are drawn from the analysis in light of the greater access to the Chinese banking markets following China's accession to the WTO. To ensure long-term profitability in Shanghai, the foreign bank needs to contain costs and risks in the new markets, formulate an effective market penetration strategy, identify appropriate customer target groups, attract businesses from firms of different countries, seek early entry and undertake more fee-income generating businesses. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1101
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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 24 (2003)
Issue (Month): 1 ()
Pages: 15-24

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Handle: RePEc:wly:mgtdec:v:24:y:2003:i:1:p:15-24
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Hondroyiannis, George & Papapetrou, Evangelia, 1996. "International banking activity in Greece: The recent experience," Journal of Economics and Business, Elsevier, vol. 48(3), pages 207-215, August.
  2. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  3. M. K. Leung & D. Rigby & T. Young, 2003. "Entry of foreign banks in the People's Republic of China: a survival analysis," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 21-31.
  4. Gray, Jean M. & Gray, H. Peter, 1981. "The multinational bank: A financial MNC?," Journal of Banking & Finance, Elsevier, vol. 5(1), pages 33-63, March.
  5. Yamori, Nobuyoshi, 1998. "A note on the location choice of multinational banks: The case of Japanese financial institutions," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 109-120, January.
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