Risk and the Corporate Structure of Banks

Dell'ariccia, Giovanni () and Robert Marquez

Journal of Finance, 2010, vol. 65, issue 3, pages 1075-1096

Abstract: We identify different sources of risk as important determinants of banks' corporate structures when expanding into new markets. Subsidiary-based corporate structures benefit from greater protection against economic risk because of affiliate-level limited liability, but are more exposed to the risk of capital expropriation than are branches. Thus, branch-based structures are preferred to subsidiary-based structures when expropriation risk is high relative to economic risk, and vice versa. Greater cross-country risk correlation and more accurate pricing of risk by investors reduce the differences between the two structures. Furthermore, a bank's corporate structure affects its risk taking and affiliate size. Copyright (c) 2010 the American Finance Association.

Date: 2010
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