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Enhancing bank performance through branches or representative offices? Evidence from European banks

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  • Liang, Hsin-Yu
  • Ching, Yann Peng
  • Chan, Kam C.

Abstract

We investigate the impact of geographic integration and the level of multinationality by expansion as a foreign branch or representative office on the parent bank performance of 45 European banks during 2000–2007. We use breadth and depth to proxy for the level of multinationality in measuring a parent bank performance. We find that for foreign expansion as a branch, both dimensions (breadth and depth) have a positive impact on a bank's return on assets (ROA). For return on equity (ROE) and Tobin's Q, only depth is positively associated with a bank's ROE while breadth is positively correlated with a bank's Tobin's Q. However, the impact from expansion as a representative office is different; breadth and depth only have a positive impact on bank ROA performance in one of the six models. In terms of cost control, a representative office strategy is better able to control costs than a branching strategy. The model goodness of fit statistics suggest that variables associated with branching better explain the performance variables than similar variables associated with representative offices in terms of profitability. The results are opposite for net interest margin and cost ratio. Overall, our findings suggest that a branching strategy is a more effective strategy in enhancing a bank's profitability while a representative office strategy controls costs better.

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  • Liang, Hsin-Yu & Ching, Yann Peng & Chan, Kam C., 2013. "Enhancing bank performance through branches or representative offices? Evidence from European banks," International Business Review, Elsevier, vol. 22(3), pages 495-508.
    • Handle: RePEc:eee:iburev:v:22:y:2013:i:3:p:495-508
    DOI: 10.1016/j.ibusrev.2012.07.003
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    More about this item

    Keywords

    Bank performance; Branches; European banks; Representative offices;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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