Do Banks Benefit from Internationalization? Revisiting the Market Power–Risk Nexus

We analyze the impact of bank internationalization on domestic market power (Lerner index) and risk for German banks. Risk is measured by the official declaration of regulatory authorities that a bank is distressed. We distinguish the volume of foreign assets, the number of foreign countries, and di...

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Bibliographic Details
Published in:Review of Finance 2013-07, Vol.17 (4), p.1401-1435
Main Authors: Buch, Claudia M., Koch, Cathérine T., Koetter, Michael
Format: Article
Language:English
Subjects:
Banks
Domestic markets
Foreign investment
Globalization
Impact analysis
Regulation of financial institutions
Risk assessment
Studies
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Summary:We analyze the impact of bank internationalization on domestic market power (Lerner index) and risk for German banks. Risk is measured by the official declaration of regulatory authorities that a bank is distressed. We distinguish the volume of foreign assets, the number of foreign countries, and different modes of foreign entry. Our analysis has three main results. First, higher market power is associated with lower risk. Second, holding assets in many countries reduce market power at home, but banks with a higher share of foreign assets exhibit higher market power. Third, bank internationalization is only weakly related to bank risk. [PUBLICATION ABSTRACT]
ISSN:1572-3097
1573-692X
1875-824X
DOI:10.1093/rof/rfs033