How Does Foreign Bank Ownership in the Banking Sector Affect Domestic Bank Behaviour? A Dynamic Panel Data Analysis

23 Pages Posted: 11 Dec 2012

See all articles by Chien-Chiang Lee

Chien-Chiang Lee

Nanchang University

Meng‐Fen Hsieh

affiliation not provided to SSRN

Hua‐Wei Dai

affiliation not provided to SSRN

Date Written: December 2012

Abstract

The purpose of this paper is to investigate how foreign bank ownership in the banking sector affects domestic bank behaviour and whether this relationship depends on the economic and financial conditions of the host country. This paper contains 795 individual banks in 39 countries covering the period 1999–2006. Foreign ownership is calculated using bank level data as a proxy for the degree of foreign bank ownership in the banking sector. First, we find that foreign bank ownership is associated with a decrease in both the profitability and overhead expenses of the domestic bank after applying the system panel Generalized Method of Moments model. Second, a lower level of economic development of the host country enhances the positive effects of foreign bank ownership on the income, profit and cost of domestic banks. Third, financial development plays an important role in determining the effect of foreign bank ownership. Fourth, while the use of aggregate foreign ownership data may provide us with a big picture, it may not explain why individual banks in the same country perform differently, which this study will answer.

Keywords: domestic banking sector, dynamic panel model, foreign bank ownership

JEL Classification: E44, G21, O16

Suggested Citation

Lee, Chien-Chiang and Hsieh, Meng‐Fen and Dai, Hua‐Wei, How Does Foreign Bank Ownership in the Banking Sector Affect Domestic Bank Behaviour? A Dynamic Panel Data Analysis (December 2012). Bulletin of Economic Research, Vol. 64, pp. s86-s108, 2012, Available at SSRN: https://ssrn.com/abstract=2187715 or http://dx.doi.org/10.1111/j.1467-8586.2011.00418.x

Chien-Chiang Lee (Contact Author)

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

Meng‐Fen Hsieh

affiliation not provided to SSRN

No Address Available

Hua‐Wei Dai

affiliation not provided to SSRN

No Address Available

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