International diversification and risk of multinational banks: evidence from the pre-crisis period

Detalhes bibliográficos
Autor(a) principal: Gulamhussen, M.
Data de Publicação: 2014
Outros Autores: Pinheiro, C., Pozzolo, A.
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: https://ciencia.iscte-iul.pt/public/pub/id/19403
http://hdl.handle.net/10071/9486
Resumo: The recent financial crisis has clearly shown that the relationship between bank internationalization and risk is complex. Multinational banks can benefit from portfolio diversification, reducing their overall riskiness, but this effect can be offset by incentives going in the opposite direction, leading them to take on excessive risks. Since both effects are grounded on solid theoretical arguments, the answer of what is the actual relationship between bank internationalization and risk is left to the empirical analysis. In this paper, we study such relationship in the period leading to the financial crisis of 2007–2008. For a sample of 384 listed banks from 56 countries, we calculate two measures of risk for the period from 2001 to 2007 – the expected default frequency (EDF), a market-based and forward-looking indicator, and the Z-score, a balance-sheet-based and backward-looking measure – and relate them to the degree of banks’ internationalization. We find robust evidence that international diversification increases bank risk.
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spelling International diversification and risk of multinational banks: evidence from the pre-crisis periodBanksRiskMultinational bankingEconomic integrationMarket structureThe recent financial crisis has clearly shown that the relationship between bank internationalization and risk is complex. Multinational banks can benefit from portfolio diversification, reducing their overall riskiness, but this effect can be offset by incentives going in the opposite direction, leading them to take on excessive risks. Since both effects are grounded on solid theoretical arguments, the answer of what is the actual relationship between bank internationalization and risk is left to the empirical analysis. In this paper, we study such relationship in the period leading to the financial crisis of 2007–2008. For a sample of 384 listed banks from 56 countries, we calculate two measures of risk for the period from 2001 to 2007 – the expected default frequency (EDF), a market-based and forward-looking indicator, and the Z-score, a balance-sheet-based and backward-looking measure – and relate them to the degree of banks’ internationalization. We find robust evidence that international diversification increases bank risk.Elsevier2015-07-29T15:47:06Z2014-01-01T00:00:00Z20142015-07-29T15:45:13Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttps://ciencia.iscte-iul.pt/public/pub/id/19403http://hdl.handle.net/10071/9486eng1572-3089Gulamhussen, M.Pinheiro, C.Pozzolo, A.info:eu-repo/semantics/embargoedAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-07-07T02:56:12Zoai:repositorio.iscte-iul.pt:10071/9486Portal AgregadorONGhttps://www.rcaap.pt/oai/openairemluisa.alvim@gmail.comopendoar:71602024-07-07T02:56:12Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv International diversification and risk of multinational banks: evidence from the pre-crisis period
title International diversification and risk of multinational banks: evidence from the pre-crisis period
spellingShingle International diversification and risk of multinational banks: evidence from the pre-crisis period
Gulamhussen, M.
Banks
Risk
Multinational banking
Economic integration
Market structure
title_short International diversification and risk of multinational banks: evidence from the pre-crisis period
title_full International diversification and risk of multinational banks: evidence from the pre-crisis period
title_fullStr International diversification and risk of multinational banks: evidence from the pre-crisis period
title_full_unstemmed International diversification and risk of multinational banks: evidence from the pre-crisis period
title_sort International diversification and risk of multinational banks: evidence from the pre-crisis period
author Gulamhussen, M.
author_facet Gulamhussen, M.
Pinheiro, C.
Pozzolo, A.
author_role author
author2 Pinheiro, C.
Pozzolo, A.
author2_role author
author
dc.contributor.author.fl_str_mv Gulamhussen, M.
Pinheiro, C.
Pozzolo, A.
dc.subject.por.fl_str_mv Banks
Risk
Multinational banking
Economic integration
Market structure
topic Banks
Risk
Multinational banking
Economic integration
Market structure
description The recent financial crisis has clearly shown that the relationship between bank internationalization and risk is complex. Multinational banks can benefit from portfolio diversification, reducing their overall riskiness, but this effect can be offset by incentives going in the opposite direction, leading them to take on excessive risks. Since both effects are grounded on solid theoretical arguments, the answer of what is the actual relationship between bank internationalization and risk is left to the empirical analysis. In this paper, we study such relationship in the period leading to the financial crisis of 2007–2008. For a sample of 384 listed banks from 56 countries, we calculate two measures of risk for the period from 2001 to 2007 – the expected default frequency (EDF), a market-based and forward-looking indicator, and the Z-score, a balance-sheet-based and backward-looking measure – and relate them to the degree of banks’ internationalization. We find robust evidence that international diversification increases bank risk.
publishDate 2014
dc.date.none.fl_str_mv 2014-01-01T00:00:00Z
2014
2015-07-29T15:47:06Z
2015-07-29T15:45:13Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv https://ciencia.iscte-iul.pt/public/pub/id/19403
http://hdl.handle.net/10071/9486
url https://ciencia.iscte-iul.pt/public/pub/id/19403
http://hdl.handle.net/10071/9486
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv 1572-3089
dc.rights.driver.fl_str_mv info:eu-repo/semantics/embargoedAccess
eu_rights_str_mv embargoedAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv Elsevier
publisher.none.fl_str_mv Elsevier
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron:RCAAP
instname_str Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron_str RCAAP
institution RCAAP
reponame_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
collection Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
repository.name.fl_str_mv Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
repository.mail.fl_str_mv mluisa.alvim@gmail.com
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