X hits on this document

PDF document

Location Decisions of Foreign Banks and Institutional Competitive Advantage - page 19 / 33

106 views

0 shares

0 downloads

0 comments

19 / 33

entry, we include first the absolute difference in institutional quality (column 2) and than both our institutional competitive advantage and the absolute difference in institutional quality between host and source country (column 3). That way we consider separately the effects of the nominator and the denominator of our institutional competitive advantage variable. We continue to control for the quality of institutions in the host country and the usual other factors.

We find that a greater absolute difference in institutional quality between host and source country reduces foreign bank entry, consistent with earlier literature (column 2). But the semi-elasticity of the absolute difference variable is smaller than that of the institutional competitive advantage variable. When we next include both the institutional competitive advantage and the absolute difference in institutional quality between host and source country (column 3), we find that only the institutional competitive advantage remains statistically significant and the absolute difference in institutional quality between host and other competitor source country is no longer significant. The semi- elasticity for the institutional competitive advantage is comparable to the regression results in column (1). In other words, both in terms of economic and statistical significance, the institutional competitive advantage variable captures best the drivers of foreign banks entry: what matters is how close the source country is to the host country

relative to how close its competitors are to the same host country.

We

next

ask

whether

competitive

advantage

matters

differently

for

merger/acquisitions than for greenfields.17 For this, we estimate the same model but interact our institutional competitive advantage variable with the mode of entry (column 4). The results suggest a greater importance of institutional competitive advantage for mergers/acquisitions than for greenfield investments, however, the difference between the two parameter estimates is not significant

The fact that different forces influence the potential importance of institutional competitive advantage for the two modes of entry might explain why we do not find a significant difference in the impact. Mergers/acquisitions are likely large investments that involve local deposit-taking and lending to local firms that requires banks to use more

17 Another, possibly related issue is the legal form of entry, specifically branches versus subsidiaries. Cerutti, Dell’Ariccia and Martinez Peria (2007) study, controlling for the entry decision, this choice as it relates to source and host country characteristics, including outward and inward regulation and barriers.

18

Document info
Document views106
Page views106
Page last viewedSun Dec 11 05:00:06 UTC 2016
Pages33
Paragraphs642
Words11833

Comments