Internationalization and Bank Risk

56 Pages Posted: 22 Nov 2015

See all articles by Raluca A. Roman

Raluca A. Roman

Federal Reserve Bank of Philadelphia

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

Multiple version iconThere are 3 versions of this paper

Date Written: June 1, 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 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

Roman, Raluca A. and Berger, Allen N. and El Ghoul, Sadok and Guedhami, Omrane, Internationalization and Bank Risk (June 1, 2015). Federal Reserve Bank of Kansas City Working Paper No. 15-08, Available at SSRN: https://ssrn.com/abstract=2693723 or http://dx.doi.org/10.2139/ssrn.2693723

Raluca A. Roman (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Allen N. Berger

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

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