Do Multinational Banks Create or Destroy Economic Value?

39 Pages Posted: 17 Mar 2010 Last revised: 20 Nov 2010

See all articles by Azzim Gulamhussen

Azzim Gulamhussen

Vlerick Business School

Carlos Manuel Pinheiro

Caixa Geral de Depósitos; BRU-IUL

Alberto F. Pozzolo

Università degli Studi di Roma Tre

Date Written: November 17, 2010

Abstract

Multinational banks are a distinctive feature of today’s globalized economy with some institutions now operating in more than 100 countries. Despite the thorough analyses of bank internationalization over the last decades, the literature has failed to provide clear evidence that cross-border expansion is a profitable process from a firm’s perspective. The analyses of the costs and benefits of focusing or diversifying the activities of a firm have a long tradition in the economic and business literatures. The overall evidence is mixed, due to the opposite effects of scale and scope economies on one side and agency costs on the other. In this paper, we study the value of internationally diversified commercial banks. In our analysis we construct a measure of banks’ excess value using a large sample of more than 500 large banks from 56 countries between 2001 and 2007, and relate it to different measures of the international diversification of their activities. We find robust evidence of a statistically and economically significant diversification premium, suggesting that, in banking, the benefits of geographic scale and scope economies more than offset the agency costs.

Keywords: Geographical Diversification, Corporate Diversification, Multinational Banking, Foreign Direct Investment

JEL Classification: G34, G21, G15, L22, F23, F36

Suggested Citation

Gulamhussen, M. A. and Pinheiro, Carlos Manuel and Pozzolo, Alberto F., Do Multinational Banks Create or Destroy Economic Value? (November 17, 2010). Available at SSRN: https://ssrn.com/abstract=1572822 or http://dx.doi.org/10.2139/ssrn.1572822

M. A. Gulamhussen (Contact Author)

Vlerick Business School ( email )

Bolwerklaan 21, 2nd floor Manhattan Center
Sint-Joost-ten-Node
Brussels, 1210
Belgium

Carlos Manuel Pinheiro

Caixa Geral de Depósitos ( email )

Av. Joao XXI, 63 2º
Lisbon
P 1000 300
Portugal

BRU-IUL ( email )

Lisboa
Portugal

Alberto F. Pozzolo

Università degli Studi di Roma Tre ( email )

Via Ostiense 163
Roma, RM 00154
Italy

HOME PAGE: http://www.uniroma3.it/

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