How Does Regulation Affect the Organizational Form of Foreign Banks' Presence in Developing versus Developed Countries?

71 Pages Posted: 22 Sep 2016 Last revised: 27 Feb 2018

See all articles by Annick Pamen Nyola

Annick Pamen Nyola

Université de Limoges, LAPE

Alain Sauviat

Université de Limoges, LAPE

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: November 16, 2017

Abstract

Using a unique hand-collected dataset of 1,251 European Union banks and 20,850 foreign affiliates hosted in 154 countries, this paper investigates how both host country and home country regulation affect the decision on where and how to go abroad in developing countries as opposed to developed countries. We find that banks prefer high-income countries with numerous activity restrictions and weaker supervision but less developed countries with less restrictions and stronger supervision. In all cases, they avoid locations with stronger capital regulation than at home. Regarding the choice of foreign organizational form (branches versus subsidiaries), banks rather operate subsidiaries in both high and middle-income countries with stringent entry requirements but prefer branches in developing countries with stringent capital requirements and greater supervisory power. Our findings contribute to the literature examining bank internationalization and have several policy implications for regulatory reforms in developing and developed countries.

Keywords: Bank regulation, Cross-border entries, Foreign branch, Foreign subsidiary, Economic development

JEL Classification: F23, F63, G21, G28

Suggested Citation

Pamen Nyola, Annick and Sauviat, Alain and Tarazi, Amine, How Does Regulation Affect the Organizational Form of Foreign Banks' Presence in Developing versus Developed Countries? (November 16, 2017). Available at SSRN: https://ssrn.com/abstract=2841608 or http://dx.doi.org/10.2139/ssrn.2841608

Annick Pamen Nyola (Contact Author)

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Alain Sauviat

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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