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Where Do Banks Expand Abroad? An Empirical Analysis

Dario Focarelli and Alberto Pozzolo
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Dario Focarelli: Banca d'Italia

The Journal of Business, 2005, vol. 78, issue 6, 2435-2464

Abstract: This paper investigates the determinants of the patterns of banks' foreign investment using a unique database of 260 large banks from OECD countries. Consistent with previous research, we find that high integration between the home and destination countries affects the location choice. However, institutional characteristics and measures of potential profit opportunities in the destination countries are more important than economic integration; they affect differently the decision between opening a branch or acquiring a subsidiary. Profit opportunities are a key factor especially affecting subsidiaries, so are lower regulatory restrictions. On the other hand, financial centers attract branches but not subsidiaries.

Date: 2005
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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:6:p:2435-2464