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Location Decisions of Foreign Banks and Institutional Competitive Advantage - page 8 / 33

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which the bank is mainly operating and which can be expected to have the greatest influence on its operations. Using direct ownership is therefore more logical than considering any indirect ownership that may be far removed from the bank’s main place of operations.3 We did, however, take into account the fact that in some cases the direct owner is an entity just established for tax purposes. In these cases, we did not use the direct, but rather the relevant next level of ownership structures.

The ownership information and source country of ownership are determined for each year the bank was active in our sample period (1995-2006). To track the ownership and the changes thereof we use as our primary source the information available in Bankscope. This information is complemented, however, with information from several other sources, including individual banks’ websites and annual reports, parent companies websites, banking regulatory agency/Central Bank websites, reports on corporate governance, local stock exchanges, SEC’s Form F-20, and country experts. Through extensive searches we are able to obtain ownership information for almost 95 percent of the banks in our sample for the entire period in which they were active.4

Basic patterns In total, our database includes 4,074 banks, of which 3,097 banks were active in 2006 in 138 countries. Of these, 1,045 were foreign banks in 2006, compared to 672 in 1995. For the whole sample, foreign ownership in terms of asset shares, increased from 5 percent in 1995 to 8 percent in 2005 (Table 1).5 In terms of numbers, relative foreign ownership increased from 21 percent in 1995 to 35 percent in 2006. There are some important trends by income groups. In terms of numbers, the increase has been relatively the largest in the lower middle-income countries, where many, albeit smaller banks have

3 Looking at direct ownership instead of indirect ownership also implies that we consider a situation where a bank is already present in a foreign, second country sets up a bank in another, third country not different from a situation where a local bank from the second country establishes in the same third country. For example, if Hansabank Estonia sets up a bank in Lithuania, but Hansabank Estonia is ultimately owned by a Swedish bank, then we consider this a decision made in Estonia, and not an investment from Sweden in Lithuania. Data do not allow us to consider both cases separately, especially not for the large sample of banks we have.

4 While our coverage is good, there are data limitations. For example, some foreign shareholders are trusts that hold shares on behalf of investors, which may or may not be foreigners, but available data do not provide this information.

5

Asset data were not yet available for many banks for 2006, which is why the asset share is as of 2005.

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