This paper investigates which factors determine a bank’s decision to expand its activities abroad and what determines its choice of the countries to invest in. The empirical analysis is conducted using firm-level data on foreign subsidiaries for a representative sample of nearly 2,500 OECD banks. The results show that the banks with cross-border shareholdings are larger and have headquarters in countries with a more developed and efficient banking market. They prefer to invest in countries where expected profits are larger, owing to higher expected economic growth and the prospect of reducing local banks’ inefficiency. These factors are overall more important in banks’ decisions than those related to the degree of openness of the origin country and its economic integration with the destination country.
Published in 2001 in: Journal of Banking and Finance, v. 25, 12, pp. 2305-2337
