The Implications of Cross Border Banking and Funding Strategy for Risk and Return

This paper investigates the effects of cross-border banking and funding modes on risk and return. We sample 320 banks across 29 African countries and employ System GMM estimator as a methodological approach to shed further light on the funding sources-stability nexus by examining the complex interac...

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Bibliographic Details
Published in:The journal of applied business and economics 2018-08, Vol.20 (4), p.93-119
Main Authors: Amidu, Mohammed, Coffie, William, Issahaku, Haruna, Sissy, Aisha Mohammed
Format: Article
Language:English
Subjects:
Banking
Banking industry
Banks
Competition
Diversification
Econometrics
Economic statistics
Financial analysis
Funding
Insolvency
International finance
Islamic financing
Liberalization
Studies
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Summary:This paper investigates the effects of cross-border banking and funding modes on risk and return. We sample 320 banks across 29 African countries and employ System GMM estimator as a methodological approach to shed further light on the funding sources-stability nexus by examining the complex interaction between three key constructs: cross-border banking, funding strategy, and bank stability and return. We find that though cross border banking increases insolvency risk, it promotes deposit funding which in turn decreases insolvency risk, implying that when banks cross border, they reduce their inherent instability by employing more of less risky deposit funds and less of wholesale and internally generated funds. Our results also suggest that banks that finance their operations with deposit funds are more profitable than those who employ wholesale and internal funds.
ISSN:1499-691X
1499-691X
DOI:10.33423/jabe.v20i4.350