The Nexus between Bank Foreign Expansion and Efficiency: The Moderating Effects of Host Country Regulation and Competition

Yijia Song, Xingda Chen, Xitao Li and Mingyue Zhang

Emerging Markets Finance and Trade, 2022, vol. 58, issue 12, 3377-3394

Abstract: Does Chinese bank efficiency benefit or suffer from foreign expansion? To investigate the causal relationship between banks foreign expansion and efficiency, we analyze 431 overseas branches of Chinese banks from 2007 to 2020. After decomposing the efficiency, we find strong, consistent evidence that such foreign expansion reduces cost efficiency due to the agency problem, while improving profit efficiency to retain the long-term bank–client relationship. Furthermore, to examine moderating effects, we consider regulations and competition among host countries. Ultimately, stringent regulations and less competition are found to be key factors impacting the loss and gain of cost and profit efficiency.

Date: 2022
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DOI: 10.1080/1540496X.2022.2045941

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