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Locational concentration and institutional diversification: Evidence from foreign direct investments in the banking industry

I Han, Hsin-Yu Liang and Kam C. Chan

The North American Journal of Economics and Finance, 2016, vol. 38, issue C, 185-199

Abstract: We study locational concentration and institutional diversification strategies in the context of foreign direct investment based on Dunning’s eclectic paradigm in the banking industry. We report that locational concentration and institutional diversification strategies can enhance multinational bank return independently and simultaneously. Further, we document that locational concentration increases operational risk, while an institutional diversification strategy reduces this risk for a multinational bank. Our findings suggest that even when concentrating in a limited number of geographic locations, it is preferable to select more institutionally dissimilar countries. Overall, we conclude that multinational banks can achieve better performance by focusing on either locational concentration or institutional diversification, or a combination of both.

Keywords: Location strategy; Location of foreign direct investments; Eclectic paradigm; Multinational bank performance (search for similar items in EconPapers)
JEL-codes: G21 G15 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:38:y:2016:i:c:p:185-199

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