Uneven Regulatory Playing Field and Bank Transparency Abroad

Journal of International Business Studies

HKUST Business School Research Paper No. 2021-041

55 Pages Posted: 23 Nov 2021 Last revised: 5 Jan 2022

See all articles by Tai-Yuan CHEN

Tai-Yuan CHEN

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology

Yi-Chun Chen

City University of Hong Kong (CityU)

Mingyi Hung

Hong Kong University of Science & Technology (HKUST)

Multiple version iconThere are 2 versions of this paper

Date Written: November 22, 2021

Abstract

Motivated by international business research on institutional arbitrage and headquarters-subsidiary relationships, we examine the effect of regulatory distance on multinational banks’ (MNBs) reporting transparency abroad. Using an international sample of foreign subsidiary banks in 46 host countries from 47 home countries, we find that bank transparency declines when the home countries have tighter activity restrictions than the host countries. We bolster the causal inference using difference-in-differences designs that take advantage of banking reforms and cross-border bank acquisitions. We also find that the result is more pronounced when parent banks have lower capital ratios or when host countries have weaker supervisory power, suggesting that parent banks use opaque reporting to conceal risk-taking abroad. Further analysis finds that less transparent subsidiaries are more likely to fail during financial crises. Overall, our findings suggest that regulatory distance creates negative externalities for bank transparency and stability abroad.

Keywords: Transparency Within and Among MNEs and National States, Agency Theory, Multinational Corporations (MNCs) and Enterprises (MNEs), Headquarters-Subsidiary Roles and Relations

JEL Classification: G20, G21, G28, M40, M41

Suggested Citation

Chen, Tai-Yuan and Chen, Yi-Chun and Hung, Mingyi, Uneven Regulatory Playing Field and Bank Transparency Abroad (November 22, 2021). Journal of International Business Studies, HKUST Business School Research Paper No. 2021-041, Available at SSRN: https://ssrn.com/abstract=3969083

Tai-Yuan Chen

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology ( email )

Clear Water Bay
Kowloon
Hong Kong

Yi-Chun Chen

City University of Hong Kong (CityU) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Mingyi Hung (Contact Author)

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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