Prague Economic Papers 2015, 24(5):538-561 | DOI: 10.18267/j.pep.527

The Performance of Foreign-Owned Banks in Host Country Economies

Tereza Fišerová1, Petr Teplý2, David Tripe3
1 Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Czech Republic (tereza.fiserova1@gmail.com).
2 Department of Banking and Insurance, Faculty of Finance and Accounting, University of Economics, Prague, Czech Republic, Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Czech Republic (petr.teply@vse.cz).
3 School of Economics and Finance, Massey University, Palmerston North, New Zealand (d.w.tripe@massey.ac.nz).

The paper deals with the phenomenon of foreign bank ownership, which is prevalent in the countries of Central, Eastern and South Eastern European region as well as in New Zealand. Using a sample of 17 countries and filtering out more than 140 domestically operating foreign-owned banks, we examine the determinants of their performance in relation to host country conditions over the period of seven years between 2005 and 2011. Based on our knowledge, we use the largest data set in this respect compared to other researchers. Using system GMM and fixed effects models, we reveal that macroeconomic fundamentals of the host country affect the foreign-owned banks' performance but do not suffice in explaining it fully. This result points out that sound banks with higher operational efficiency operating in growing economies with low inflation rate tend to perform better than their peers.

Keywords: generalized method of moments, foreign ownership, fixed effects model, banks and banking, bank performance measurement
JEL classification: G21, L25

Published: January 1, 2015  Show citation

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Fišerová, T., Teplý, P., & Tripe, D. (2015). The Performance of Foreign-Owned Banks in Host Country Economies. Prague Economic Papers, 24(5), 538-561. doi: 10.18267/j.pep.527
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