You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:


Log in to your personal account or through your institution.

Where Do Banks Expand Abroad? An Empirical Analysis

Dario Focarelli and Alberto Franco Pozzolo
The Journal of Business
Vol. 78, No. 6 (November 2005), pp. 2435-2464
DOI: 10.1086/497052
Stable URL:
Page Count: 30
Subjects: Business Finance
Find more content in these subjects: Business Finance
  • Download PDF
  • Add to My Lists
  • Cite this Item
We're having trouble loading this content. Download PDF instead.


This paper investigates the determinants of the patterns of banks' foreign investment using a unique database of 260 large banks from OECD countries. Consistent with previous research, we find that high integration between the home and destination countries affects the location choice. However, institutional characteristics and measures of potential profit opportunities in the destination countries are more important than economic integration; they affect differently the decision between opening a branch or acquiring a subsidiary. Profit opportunities are a key factor especially affecting subsidiaries, so are lower regulatory restrictions. On the other hand, financial centers attract branches but not subsidiaries.

Notes and References

This item contains 41 references.

  • ['Ball, C. A., and A. E. Tschoegl. 1982. The decision to establish a foreign branch or subsidiary: An application of binary classification procedures. Journal of Financial and Quantitative Analysis 17:411–24.']
  • ['Barro R. J. 2000. International data on educational attainment: Updates and implications. Mimeo, Harvard University, mimeo.']
  • ['Barth, J. R., G. Caprio Jr., and R. Levine, 2000. Banking systems around the globe: Do regulation and ownership affect performance and stability? Working paper, Domestic Finance No. 2325. World Bank, Geneva.']
  • ['Berger A. N., R. S. Demsetz, and P. E. Strahan. 1999. The consolidation of the financial services industry: Causes, consequences, and implications for the future. Journal of Banking and Finance 23:135–94.']
  • ['Berger, A. N., R. DeYoung, H. Genay, and G. F. Udell. 2000. The globalization of financial institutions: Evidence from a cross‐border banking performance. Brookings‐Wharton Paper on Financial Service 2000, 23–120.']
  • ["Berger, A. N., A. K. Kashyap, and J. M. Scalise. 1995. The transformation of the U.S. banking industry: What a long, strange trip it's been. Brookings Papers on Economic Activities 2:55–218."]
  • ['Boot A.W.A. 1999. European lessons on consolidation in banking. Journal of Banking and Finance 23:609–13.']
  • ['Brealey, R. A., and E. C. Kaplanis. 1996. The determination of foreign banking location. Journal of International Money and Finance 15: 577–97.']
  • ['Buch C.M. 2000. “Why do banks go abroad? Evidence from German data. Journal of Financial Markets, Instruments and Institutions 9:33–67.']
  • ['———. 2003. “Information or regulation: What is driving the international activities of commercial banks? Journal of Money Credit and Banking, 35:851–69.']
  • ['Claessens, S., A. Demirgüç‐Kunt, and H. Huizinga. 2000. The role of foreign banks in domestic banking systems. In The internationalization of financial services: Issues and lessons for developing countries ed. S. Claessens and M. Jansen. Boston: Kluwer Academic Publishers.']
  • ['Dale R. 1984. The regulation of international banking. Cambridge, Woodhead Faulkner.']
  • ['Fisher, A., and P. Molyneux. 1996. A note on the determinants of foreign bank activity in London between 1980 and 1989. Applied Financial Economics 6:271–77.']
  • ['Focarelli, D., F. Panetta, and C. Salleo. 2002. “Why do banks merge? Journal of Money Credit and Banking 34, no. 3 (August, Part 1):784–803.']
  • ['Focarelli, D., and A. F. Pozzolo. 2001. The patterns of cross‐border bank mergers and shareholdings in OECD countries. Journal of Banking and Finance 25:2305–37.']
  • ['Goldberg, L. G., and R. Grosse. 1994. Location choice of foreign banks in the United States. Journal of Economics and Business 46:367–79.']
  • ['Goldberg, L. G., and D. Johnson. 1990. The determinants of U.S. banking activity abroad. Journal of International Money and Finance 9:123–37.']
  • ['Goldberg. L. G., and A. Saunders. 1980. The causes of U.S. bank expansion overseas: The case of Great Britain. Journal of Money Credit and Banking 12:630–43.']
  • ['———. 1981. The growth and organizational form of foreign banks in the U. S. Journal of Money Credit and Banking 13:365–74.']
  • ['Grosse, R., and L. G. Goldberg. 1991. Foreign bank activity in the United States: An analysis by country of origin. Journal of Banking and Finance 15:1092–1112.']
  • ['Group of Ten. 2001. Consolidation in the financial sector—Summary report. Available at the Web sites of the BIS, the IMF, the OECD, the Bank of Italy.']
  • ['Hausman, J. A., and D. L. McFadden. 1984. Specification tests for the multinomial logit model. Econometrica 52:1219–40.']
  • ['International Financial Corporation. 1998. Emerging stock markets factbook. Washington, D.C.']
  • ['International Monetary Fund. 1998a. International financial statistics yearbook. Geneva: IMF.']
  • ['———. 1998b. Direction of trade statistics. Geneva: IMF.']
  • ['Kroszner, Randall S. 1999. Is the financial system politically independent? Perspectives on the political economy of banking and financial regulation. Mimeo, University of Chicago.']
  • ['La Porta, R., F. Lopez‐de‐Silanes, A. Shleifer, and R. W. Vishny. 1998. Law and finance. Journal of Political Economy 106:1113–55.']
  • ['Levine R. 1998. The legal environment, banks, and long‐run economic growth. Journal of Money Credit and Banking 30:596–613.']
  • ['Levine, R., and S. Zevros. 1998. Stock markets, banks, and growth. American Economic Review 88, no. 3:537–58.']
  • ["Miller, S. R., and A. Parkhe. 1998. Patterns in the expansion of U.S. banks' foreign operations. Journal of International Business Studies 29:359–90."]
  • ['Nigh, D., K. R. Cho, and S. Krishnan. 1986. The role of location‐related factors in U.S. banking involvement abroad: An empirical analysis. Journal of International Business Studies:59–72.']
  • ['Peek J., and E. S Rosengren 1997. The international transmission of financial shocks: The case of Japan. American Economic Review 87:495–505.']
  • ['Rajan R. G. 1998. The past and future of commercial banking viewed through an incomplete contract lens. Journal of Money Credit and Banking 30:524–50.']
  • ['Sagari S.B. 1992. United States foreign direct investment in the banking industry. Transnational Corporations:93–123.']
  • ['Tschoegl A. E. 1982. Concentration among international banks. Journal of Banking and Finance 6:567–78.']
  • ["———. 1983. Size, growth, and transnationality among the world's largest banks. Journal of Business:187–201."]
  • ['Ursacki, T., and I. Vertinsky. 1992. “Choice of Entry timing and scale by foreign banks in Japan and Korea. Journal of Banking and Finance 16:405–21.']
  • ['ter Wengel, J. 1995. “International trade in banking services. Journal of International Money and Finance 14:47–64.']
  • ['Williams B. 1996. “Determinants of the performance of Japanese financial institutions in Australia 1987–1992. Applied Economics 28:1153–65.']
  • ['———. 1998. “Factors affecting the performance of foreign‐owned banks in Australia: A cross‐sectional study. Journal of Banking and Finance 22:197–219.']
  • ['Yamori N. 1998. A Note on the Location choice of multinational banks: The case of Japanese financial institutions. Journal of Banking and Finance 22:109–20.']