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Internationalization and Bank Risk

Management Science, Forthcoming

57 Pages Posted: 5 Nov 2014 Last revised: 30 Jan 2016

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Raluca A. Roman

Federal Reserve Bank of Kansas City

Multiple version iconThere are 3 versions of this paper

Date Written: November 15, 2015

Abstract

This paper documents a positive relation between internationalization and bank risk. This is consistent with the empirical dominance of the market risk hypothesis – whereby internationalization increases banks’ risk due to market-specific factors in foreign markets – over the diversification hypothesis – whereby internationalization allows banks to reduce risk through diversification of their operations. The results continue to hold following a variety of robustness tests, including those for endogeneity and sample selection bias. We also find that the magnitude of this effect is more pronounced during financial crises. The results appear to be at least partially explained by agency problems related to poor corporate governance.

Keywords: Risk, Internationalization, Banking, Financial Crises, Corporate Governance

JEL Classification: G21, G28, L25

Suggested Citation

Berger, Allen N. and El Ghoul, Sadok and Guedhami, Omrane and Roman, Raluca A., Internationalization and Bank Risk (November 15, 2015). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2249048 or http://dx.doi.org/10.2139/ssrn.2249048

Allen Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Sadok El Ghoul

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Raluca Roman

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States
1816-585-0548 (Phone)

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