Political institutions and foreign banks’ risk-taking in emerging markets

Rui Wang and Yubing Sui

Journal of Multinational Financial Management, 2019, vol. 51, issue C, 45-60

Abstract: This paper investigates the impact of political institutions in host countries on the risk-taking of foreign banks. We first propose several channels through which political institutions theoretically affect foreign banks’ risk-taking. We then empirically examine the relationships by using bank-level data from 2000 to 2013 in 35 emerging markets. Research evidence suggests that foreign banks’ stability increases with the democracy of political institutions. However, the benefits of democratic institutions weaken for foreign banks established through mergers and acquisitions, financial institutions with relatively short operating periods in host markets, and those with inefficient operations. Moreover, the positive effect is also undermined by improvements to the deposit insurance system of the host country. Finally, a country’s political institutions tend to further strengthen the stability of foreign banks when the host country has sound legal institutions.

Keywords: Political institutions; Foreign bank risk-taking; Emerging markets (search for similar items in EconPapers)
JEL-codes: F55 G21 G38 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042444X19300519
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:51:y:2019:i:c:p:45-60

DOI: 10.1016/j.mulfin.2019.07.001

Access Statistics for this article

Journal of Multinational Financial Management is currently edited by I. Mathur and G. G. Booth

More articles in Journal of Multinational Financial Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().