Internationalization and Bank Risk

Management Science, Forthcoming

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

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

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 Philadelphia

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 N. Berger (Contact Author)

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

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

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 A. Roman

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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