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Do banks benefit from internationalization? Revisiting the market power–risk nexus


Buch, Claudia M; Koch, Cathérine; Koetter, Michael (2013). Do banks benefit from internationalization? Revisiting the market power–risk nexus. Review of Finance, 17(4):1401-1435.

Abstract

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.

Abstract

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.

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13 citations in Web of Science®
13 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Market power-risk nexus, international banking, micro-data
Language:English
Date:July 2013
Deposited On:31 Jan 2014 11:26
Last Modified:05 Apr 2016 17:36
Publisher:European Finance Association
ISSN:1572-3097
Publisher DOI:https://doi.org/10.1093/rof/rfs033

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