Do Foreign Banks Take More Risk? Evidence from Emerging Economies
50 Pages Posted: 12 Mar 2016
Date Written: March 2016
This paper addresses the impact of foreign ownership on banks’ risk-taking behavior. Using the bank-level panel data of more than 1,300 commercial banks in 32 emerging economies during 2000-2013, we find that foreign owned banks take on more risk than their domestic counterparts. We further examine the factors that may contribute to foreign banks’ differentiated riskiness from several perspectives, namely, foreign banks’ informational disadvantages, agency problems, the contagion effect of parent banks’ financial conditions and the disparity between home and host markets, and find supportive evidence that these factors play a significant role in affecting foreign banks’ risk-taking.
Keywords: Foreign banks; Bank risk-taking; Emerging economies
JEL Classification: G21; G15; F65
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