Internationalization and Bank Risk

Allen N. Berger (), Sadok El Ghoul, Omrane Guedhami () and Raluca Roman ()
Additional contact information
Allen N. Berger: University of South Carolina, Columbia, South Carolina 29208; Wharton Financial Institutions Center, Philadelphia, Pennsylvania 19104; and European Banking Center, 5000 LE Tilburg, Netherlands
Omrane Guedhami: University of South Carolina, Columbia, South Carolina 29208

Management Science, 2017, vol. 63, issue 7, 2283-2301

Abstract: This paper documents a positive relation between internationalization and bank risk. This is consistent with the empirical dominance of the market risk hypothesis , whereby internationalization increases banks’ risk due to market-specific factors in foreign markets, over the diversification hypothesis , whereby internationalization allows banks to reduce risk through diversification of their operations. The results continue to hold following a variety of robustness tests, including those for endogeneity and sample selection bias. We also find that the magnitude of this effect is more pronounced during financial crises. The results appear to be at least partially explained by agency problems related to poor corporate governance.

Keywords: risk; internationalization; banking; financial crises; corporate governance (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (71)

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https://doi.org/10.1287/mnsc.2016.2422 (application/pdf)

Related works:
Working Paper: Internationalization and bank risk (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:63:y:2017:i:7:p:2283-2301

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