Do Multinational Banks Use Internal Capital Markets and How?: Evidence from Bank-Level Panel Data in Emerging Economies

33 Pages Posted: 28 Jan 2013

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management; Pennsylvania State University Harrisburg

Date Written: January 25, 2013

Abstract

This paper examines internal capital markets between multinational banks and their foreign subsidiaries. We observe the lending behavior of more than 300 subsidiaries within 69 multinational banks from 24 home countries, which conducted banking activities in 50 emerging and developing countries during the period 1994-2008, and find robust evidence for the operation of internal capital markets. Foreign subsidiaries increase their credit in host countries when their parent banks have higher internally added funds, and the funds available from parent banks reduce the sensitivity of subsidiaries to their own internal funds. We also find that the funds from parent banks are allocated in favor of smaller and less profitable subsidiaries. Higher capitalization of subsidiaries enhances the buffering effects of parent bank internal funds on subsidiaries’ own internal funds, suggesting that foreign subsidiaries could insulate the effects caused by an adverse shock upon their parent banks by raising their own capital sufficiency. Our findings have useful implications for internal capital markets in multinational banking as a channel of the contagion of the recent global financial crises from the U.S. to various other countries.

Keywords: foreign bank penetration, internal capital market, financial crisis

JEL Classification: E44, F43, G21

Suggested Citation

Jeon, Bang Nam and Wu, Ji, Do Multinational Banks Use Internal Capital Markets and How?: Evidence from Bank-Level Panel Data in Emerging Economies (January 25, 2013). Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: https://ssrn.com/abstract=2207614 or http://dx.doi.org/10.2139/ssrn.2207614

Bang Nam Jeon (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Pennsylvania State University Harrisburg ( email )

777 West Harrisburg Pike
Middletown, PA 17057
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
111
Abstract Views
722
rank
255,965
PlumX Metrics