National Governance Differences and Foreign Bank Performance in Asian Countries: The Role of Bank Competition

Sheng-Hung Chen () and Feng-Jui Hsu ()
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Sheng-Hung Chen: National Kaohsiung University of Science and Technology
Feng-Jui Hsu: National Taichung University of Science and Technology

Computational Economics, 2022, vol. 59, issue 4, No 2, 1283-1333

Abstract: Abstract Previous studies pay a little attention to whether the differences in national governance quality between home and host country substantially affect foreign bank performance. Based on a bank panel data with 375 foreign banks in 47 Asian countries between 2004 and 2019, the impact of the host–home country difference in governance quality on foreign bank performance is empirically investigated by considering the degree of banking competition measured with the Boone index. Using a panel data model with multilevel mixed-effects, this paper finds that foreign banks in Asia present higher profits than domestic banks. Specifically, banks locating in a less competitive host nation show higher profitability, while host–home differences in aggregated quality of national governance also significantly reduce the foreign bank profitability in terms of individual indicator for voice and accountability, political stability and absence of violence/terrorism, government effectiveness, regulatory quality, rule of law, and control of corruption. Finally, foreign banks could gauge their market power in a less competitive banking structure in the host country to mitigate the negative influence of national governance between host and home country on their financial performance.

Keywords: Foreign Banks; National Governance; Host–Home Country Difference; Bank Profitability; Banking Competition; Boone Index (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10614-021-10213-7

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