Do multinational banks create or destroy economic value?

M. A. Gulamhussen, Carlos Piheiro and Alberto Pozzolo

Economics & Statistics Discussion Papers from University of Molise, Department of Economics

Abstract: Multinational banks are a distinctive feature of today’s globalized economy with some institutions now operating in more than 100 countries. Despite the thorough analyses of bank internationalization over the last decades, the literature has failed to provide clear evidence that cross-border expansion is a profitable process from a firm’s perspective. The analyses of the costs and benefits of focusing or diversifying the activities of a firm have a long tradition in the economic and business literatures. The overall evidence is mixed, due to the opposite effects of scale and scope economies on one side and agency costs on the other. In this paper, we study the value of internationally diversified commercial banks. In our analysis we construct a measure of banks’ excess value using a large sample of more than 500 large banks from 56 countries between 2001 and 2007, and relate it to different measures of the international diversification of their activities. We find robust evidence of a statistically and economically significant diversification premium, suggesting that, in banking, the benefits of geographic scale and scope economies more than offset the agency costs.

Keywords: Geographical diversification; Corporate diversification; Multinational banking; Foreign Direct Investment (search for similar items in EconPapers)
JEL-codes: F23 F36 G15 G21 G34 L22 (search for similar items in EconPapers)
Date: 2011-02-01
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Do multinational banks create or destroy economic value? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mol:ecsdps:esdp11057

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