Subsidiary banks in emerging markets: how strong is the coordination on a group-wide basis?

Małgorzata Iwanicz-Drozdowska and Bartosz Witkowski

International Journal of Emerging Markets, 2021, vol. 18, issue 1, 86-101

Abstract: Purpose - The parent-subsidiary nexus has been explored since the mid-1990s, but the extent to which subsidiaries resemble their parents remains unclear. Therefore, this study examines the performance drivers for subsidiary banks in emerging markets and their parents to determine the similarities between these groups. The findings could help identify key financial performance measures that should be included in global strategies for multinational banks operating in emerging markets. Design/methodology/approach - The study uses data on subsidiaries from 32 countries, including 20 European transitioning countries and 49 parent companies operating internationally from 1996 to 2015. It considers several models that distinguish between units using individual bank effects and the stochastic structure. In a robustness analysis, EU- and non-EU-based institutions are distinguished and long-term historical links between parents' and subsidiaries' countries are considered. Findings - Cost control, capital adequacy and asset quality policies have similar importance for parent banks and subsidiaries and are strictly coordinated, whereas the remaining policies allow more flexibility. Subsidiaries in the EU and in countries that were politically and/or militarily influenced by parent countries do not “fall far from the tree”, which signals their strong group-wide integration and coordination. Research limitations/implications - This study covers a limited number of emerging market countries due to the limited availability of long-term series data. Future studies should include more countries. Originality/value - This study identifies key financial measures used on a group-wide basis for performance management while accounting for long-term relations between host and home countries and the geopolitical characteristics of host countries.

Keywords: Performance; Foreign-owned banks; Emerging markets (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-05-2020-0487

DOI: 10.1108/IJOEM-05-2020-0487

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