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Do foreign banks take more risk? Evidence from emerging economies

Minghua Chen, Ji Wu, Bang Jeon () and Rui Wang

Journal of Banking & Finance, 2017, vol. 82, issue C, 20-39

Abstract: This paper addresses the impact of foreign ownership on the risk-taking behavior of banks. Using bank-level panel data of more than 1300 commercial banks in 32 emerging economies during 2000–2013, we find that foreign owned banks take on more risk than their domestic counterparts. We further examine several factors that may potentially contribute to foreign banks’ differentiated riskiness from four perspectives, namely, foreign banks’ informational disadvantages, agency problems, the contagious effect of parent banks’ financial conditions and the disparity between home and host markets. We find supportive evidence that these factors play a significant role in affecting foreign banks’ risk-taking.

Keywords: Foreign banks; Bank risk-taking; Emerging economies (search for similar items in EconPapers)
JEL-codes: G21 G15 F65 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Do foreign banks take more risk? Evidence from emerging economies (2016) Downloads
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