The determinants of bank internationalisation in times of financial globalisation: evidence from the world's largest banks, 1980–2007

Abstract

This article analyses the determinants of bank internationalisation, of the world's largest banks from the period 1980–2007. The purpose of the article is twofold. First, we show how a mixed-methods research design, in which we combine a variables-based research with three case studies, can contribute to the field of business history. The variables-based research helps to detect general trends, but the statistical analysis alone only provides a limited understanding of the factors that drive the trends. By analysing selected case studies, we provide a context within which the statistical results are better understood. The second purpose is to understand trends in the internationalisation strategies of banks from different regions, and during different time periods. Contrasting with prior research, we find that Japanese and US banks have exhibited different internationalisation pattern as opposed to the European banks. Also, the determinants of bank internationalisation differ in importance over time. Using case studies, we show the importance of the changing regulatory environment.

Keywords::

• bank
• internationalism
• financial
• global
• evidence

Notes

^1.Jones, Banks as Multinationals.

^2. Ibid., 10.

^3. For example see Berger, Buch, DeLong and DeYoung, “Exporting Financial Institutions”; Buch and DeLong, “Cross-border Bank Mergers”; Focarelli and Pozzolo, “The Patterns of Cross-border Bank Mergers.”

^4.Gorton and Metrick, “Securitized Banking.”

^5.Mullineux and Murinde, “Globalization and Convergence,” 6.

^6. Ibid., 11.

^7.Larson, Schnyder, Westerhuis, and Wilson, “Strategic Responses.”

^8. See Quinn, “The Correlates of Change”; Stulz, “The Limits of Financial Globalization.”

^9.Guillén and Tschoegl, “At Last.”

^10.Buckley, “Business History,” 320.

^11.Jones and Khanna, “Bringing History (Back)”.

^12.Buckley, “Business History,”319.

^13. It is not our intention to recapitulate the extant literature on international business theory. We refer to Buckley, “Business History,” for an excellent overview of theories on multinational enterprises.

^14.Howcroft, ul-Haq, and Carr, “An Examination.”

^15.Zaheer, “Overcoming the Liability”; Ghemawat, “Distance Still Matters”.

^16.Tschoegl, “International Retail Banking”; see also Guillén and Tschoegl, “At Last,” for the internationalisation of Spanish retail banking in Latin America,

^17.Grubel, “A Theory of Multinational Banking”; see also Gray and Gray, “The Multinational Bank.”

^18. See Williams, “Positive Theories” for an extensive description of the two.

^19. Transaction costs as defined by Coase, “The Nature of the Firm.”

^20.Gray and Gray, “The Multinational Bank”; Ball and Tschoegl, “The Decision to Establish”; Boldt-Christmas, Jacobsen, and Tschoegl, “The International Expansion.”

^21. See also Focarelli and Pozzolo, “Where do Banks Expand Abroad?”

^22.Kindleberger, “International Banks,” 592.

^23. See Choi, Tschoegl, and Yu, “Banks and the World's Major,”; Choi, Park and Tschoegl, “Banks and the World's Major Financial Centres, 1990”; Choi, Park and Tschoegl, “Banks and the World's Major Banking Centres, 2000.”

^24. See Laeven and Levine, “Bank Governance.”

^25. See Dunning, “Trade, Location.”

^26.Williams, “Positive Theories,” 79.

^27. Ibid., 95.

^28. See Cattani and Tschoegl, “An Evolutionary View,” for this view on the internationalisation of Chase Manhattan Bank

^29.Johanson and Vahlne, “The Internationalization Process.”

^30. Ibid.

^31.Forsgren, “The Concept of Learning.”

^32.Johanson and Vahlne, “Commitment and Opportunity.”

^33.Focarelli and Pozzolo, “The Patterns of Cross-border Bank Mergers.”

^34.Berger, “International Comparisons”.

^35.Lane and Milesi-Ferretti, “The Drivers.”

^36.Tschoegl, “Who Owns.”

^37.Westerhuis, Conquering the American Market.

^38.Lane and Milesi-Ferretti, “The Drivers.”

^39. See Westerhuis, Conquering the American Market, for Dutch banks entering the US; see Lu, “The US Government Dual Banking,” for HSBC acquiring Marine Midland Banks Inc.

^40.Jacobsen and Tschoegl, “The Norwegian Banks”; Engwall, Marquardt, Pedersen, and Tschoegl, “Foreign Bank Penetration.”

^41.Dunning, “Trade, Location.”

^42.Tashakkori and Teddlie, Handbook of Mixed Methods; Creswell, Research Design; Johnson and Onwuegbuzie, Mixed Methods Research.

^43.King and Levine, “Finance and Growth.” They also proposed two more indicators of financial development that measure to whom the financial sector is allocating credit.

^44. See Chinn and Ito, “Capital Account.”

^45.Dunning, Multinational Enterprises.

^46.King and Levine, “Finance and Growth.”

^47.King and Levine, “Finance, Entrepreneurship, Growth”; Levine, Loayza, and Beck, “Financial Intermediation.”

^48.Claessens, Klingebiel,and Schmukler, “Stock Market Development.”

^49.Buckley, “Business History.”

^50. See for example Westerhuis, Conquering American Market; Kobrak, Banking on Global Markets; Cattani and Tschoegl, “An Evolutionary View”; Engwall et al., “Foreign Bank Penetration”; Boldt-Christmas et al., “The International Expansion”; Jones, Banks as Multinationals.

^51. Cf. De Haas and Van Lelyveld, “Internal Capital Markets.”

^52.Levine, “Bank-Based or Market-Based.”

^53.King and Levine, “Finance, Entrepreneurship, and Growth.”

^54. See for example: Knack and Keefer, “Does Social Capital”; Rajan and Zingales, “Financial Dependence and Growth”; Borensztein, Gregorio and Lee, “How does Foreign Direct Investment”; Lane and Milesi-Ferretti, “The Drivers.”

^55.IMF, “Global Financial Stability Report.”

^56.Gall, Feldman, James, Holtfrerich, and Buschgen, The Deutsche Bank; Kobrak, Banking on Global Markets.

^57.Canals, Universal Banking, 88–89 and 254–255.

^58.Jones, Banks as Multinationals, 1

^59. See Contractor, Kundu, and Hsu, “A Three-stage Theory”; Gomes and Ramaswamy, “An Empirical Examination”; Sullivan, “Measuring the Degree.”

^60.Hejazi and Santor, “Foreign Asset Risk Exposure”; Focarelli and Pozzolo, “Where do Banks Expand Abroad?” Alternative measures of bank internationalization predominantly focus on the number of foreign branches and offices (see for example Tschoegl, “Size, Growth, and Transnationality”; Buch, Koch, and Koetter, “Should I Stay”). Though that data can be relatively easily obtained, and is free of differences accounting practices, it has the major drawback that counting offices irrespective of their size and contribution to the overall sales is a very crude measure (see Brealey and Kaplanis, “The Determination Foreign Banking,” for a discussion).

^61. We use bank in a broad sense to cover a wide range of financial institutions, including commercial, investment and universal banks. The reason for restricting ourselves to five banks per country is to avoid dominance by, e.g. the US and UK.

^62. For some firms at the start of the sample, we could not obtain foreign employment figures, or foreign sales. As a consequence, these firms exhibit unstable DOIs in the earliest one or two years of the sample period.

^63.Tschoegl, “Size, Growth, and Transnationality.”

^64.Tschoegl, “Size, Growth, and Transnationality.”

^65. The DOI variable has a strong autocorrelation of order 1. This autocorrelation requires a different model specification. At higher lags this autocorrelation is absent.

^66.Arellano and Bond, “Some Tests of Specification”. This method is based upon the generalised method of moments (GMM) which is an econometric estimation method.

^67. The presented OLS estimates are biased and inconsistent.

^68.Cliff, “Dominance Statistics.”

^69. Deposit savings are a cheap source of financing for banks.

^70. In Table 3, it appeared that for Model 1 per capita GDP had a negative and statistically significant correlation with bank internationalization (in the GMM estimates). Yet, in Model 3 (which was used as our reference for Tables 4 and 5) the relationship was statistically insignificant for the GMM estimates.

^71. See the findings of Lane and Milesi-Ferretti, “The Drivers.”

^72. Based on Key, “The Internatonalisation of U.S. Banking,” in Benston, “US Banking.”

^73.Williams, “Positive Theories.”

^74.Casson, “Evolution of Multinational Banks.”

^75. See for example Calomiris, US Bank Deregulation; Calomiris, “Banking Approaches”; see Sherman, A Short History, for a summary.

^76.Slager, Banking Across Borders.

^77.http://about.bankofamerica.com/en-us/our-story/our-history-and-heritage.html

^78.Battilossi and Cassis, European Banks.

^79.Canals, Universal Banking, 254.

^80. Ibid., 89

^81. Ibid., 89.

^82. Ibid., 89.

^83. Ibid., 89; http://about.bankofamerica.com/en-us/our-story/our-history-and-heritage.html

^84.http://about.bankofamerica.com/en-us/our-story/our-history-and-heritage.html

^85.Berglöf and Perotti, “The Governance Structure.”

^86. See for example Hodder and Tschoegl, “Some Aspects.”

^87.Berglöf and Perotti, “The Governance Structure.”

^88.Hodder and Tschoegl, “Some Aspects.”

^89.Sheard, “The Main Bank System.”

^90. Ibid.

^91. Ibid.

^92.Slager, Banking Across Borders, 385.

^93.Grosse and Goldberg, “Foreign Bank Activity.”

^94. Ibid., 387.

^95. Ibid.

^96.LeBel, “Asset Bubbles.”

^97.Honda, “The Effects of Basle Accord.”

^98. Ibid.

^99.Drake, “Cost and Efficiency.”

^100.http://www.referenceforbusiness.com/history2/75/Sumitomo-Mitsui-Banking-Corporation.html

^101. Ibid.

^102.Hanazaki and Horiuchi, “A Review Japan's Bank Crisis.”

^103.http://www.referenceforbusiness.com/history2/75/Sumitomo-Mitsui-Banking-Corporation.html

^104. Ibid.

^105. Ibid.

^106. Ibid.

^107.Benink, Financial Integration; Berger, DeYoung, Genay, and Udell, “Globalization of Financial Institutions.”

^108.Kobrak, Banking on Global Markets.

^109.Gall et al., The Deutsche Bank, 741; Kobrak, Banking on Global Markets.

^110.Zanden and Uittenbogaard, “Expansion, Internationalisation, and Concentration,”366–367.

^111.Gall et al., The Deutsche Bank, 785.

^112. Ibid., 747.

^113.Slager, Banking Across Borders, 313.

^114. See for example Kipping and Westerhuis, “The Managerialization of Banking.”

^115. See for example Bátiz-Lazo and Wood, “Strategy, Competition and Diversification” for an analysis of the influence of management styles on diversification strategies within bank markets.

Additional information

Funding

This work was supported by The Netherlands Organisation for Scientific Research (NWO) [grant number 275-53-010 (Veni granted to Gerarda Westerhuis)].

Notes on contributors

Arjen Mulder

Gerarda Westerhuis works as a researcher at the Department of History and Art History (Utrecht University) and as a lecturer at the Department of Finance, Rotterdam School of Management (Erasmus University). Recently, she started her new research project entitled “Unraveling the origins of a banking crisis: changing perceptions of risk and managerial beliefs in Dutch banking, 1957–2007”. Her main research interests are banking, financing, corporate governance, networks and financial elites.

Gerarda Westerhuis

Arjen Mulder is assistant professor of corporate finance at the Department of Finance, Rotterdam School of Management, Erasmus University. His main research interests are corporate finance, international finance, international business, and banking.