How organizational and geographic complexity influence performance: Evidence from European banks

Annick Pamen Nyola, Alain Sauviat, Amine Tarazi and Gamze Ozturk Danisman
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Alain Sauviat: UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: We empirically investigate how bank internationalization, organizational complexity, and geographical complexity stemming from foreign-affiliate type and geographic dispersion affect parent bank stability and profitability. We base our analysis on unique, hand-collected data for the worldwide locations of subsidiaries and branches of EU banks. Our results show that internationalization benefits bank stability by reducing default risk, and it is significantly associated with lower earnings volatility but poorer profitability. With regard to foreign organizational complexity, banks with both foreign subsidiaries and foreign branches are more stable than banks with foreign branches exclusively, which are more stable than banks with only foreign subsidiaries. Nevertheless, higher geographic complexity is associated with lower default risk, higher volatility in earnings, and higher profitability. Further investigations on the sovereign debt crisis and bank size indicate that the sovereign debt crisis in 2011 amplified the relationship and our findings mainly hold for small banks.

Date: 2021-08
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Published in Journal of Financial Stability, 2021, 55, pp.100894. ⟨10.1016/j.jfs.2021.100894⟩

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Journal Article: How organizational and geographic complexity influence performance: Evidence from European banks (2021)
Working Paper: How Organizational and Geographic Complexity Influence Performance? Evidence from European Banks (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04881077

DOI: 10.1016/j.jfs.2021.100894

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