Firm Characteristics and Bank Internationalization in an Emerging Economy

Abstract

Following the developed economies, banks in the emerging economies also take strategic moves to internationalize in order to expand target market and boost profitability. This research examines how firm-level characteristics of banks effect their international activities in emerging economies, using the case of Bangladesh - a fast-growing emerging market. This paper utilizes regression with Driscoll-Kraay standard errors and FGLS on the data of 35 banks for the period from 2005 to 2014. The effect has been examined first for all banks, and then grouping the banks by state-owned banks (SOBs) and private commercial banks (PCBs). Findings suggest that bank size, domestic market coverage, and experience from international operations, by and large, induce banks to expand international activities while banks tend to adopt the strategy to reduce international exposure as they grow older. The paper finds substitution effects between domestic branch and foreign presence, and a minimal influence of profitability on internationalization. However, results for private commercial banks and state-owned banks differ substantially. The paper stresses the need for specific regulations to facilitate both internationalization and de-internationalization of banks in the emerging economies. Especially, de-internationalization is critical for banks losing money from internationalization. The paper contributes to the literature by: using new measures of internationalization moves, being the first examination on Bangladesh, and providing new insights for bank regulation in the emerging economies.