Do Multinational Banks Create or Destroy Economic Value?

36 Pages Posted: 22 Oct 2010

See all articles by Carlos Manuel Pinheiro

Carlos Manuel Pinheiro

Caixa Geral de Depósitos; BRU-IUL

Azzim Gulamhussen

Vlerick Business School

Alberto F. Pozzolo

Università degli Studi di Roma Tre

Date Written: October 21, 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. Following the long tradition of the analysis of the costs and benefits of focusing or diversifying the activities of a firm, in this paper we provide an answer to the question of whether bank cross-border diversification is value enhancing. In a large sample of more than 500 banks from 56 countries between 2001 and 2007, we find robust evidence of a statistically and economically significant diversification premium. Our results show that the benefits of scale and scope economies generated by multinational banks more than offset the typical agency costs of managing larger and more complex companies.

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

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

Suggested Citation

Pinheiro, Carlos Manuel and Gulamhussen, M. A. and Pozzolo, Alberto F., Do Multinational Banks Create or Destroy Economic Value? (October 21, 2010). Paris December 2010 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=1695506

Carlos Manuel Pinheiro (Contact Author)

Caixa Geral de Depósitos ( email )

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

BRU-IUL ( email )

Lisboa
Portugal

M. A. Gulamhussen

Vlerick Business School ( email )

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

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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