Journal Article

Do Banks Benefit from Internationalization? Revisiting the Market Power–Risk Nexus*

Claudia M. Buch, Cathérine T. Koch and Michael Koetter

in Review of Finance

Published on behalf of European Finance Association

Volume 17, issue 4, pages 1401-1435
Published in print July 2013 | ISSN: 1572-3097
Published online November 2012 | e-ISSN: 1573-692X | DOI: http://dx.doi.org/10.1093/rof/rfs033
Do Banks Benefit from Internationalization? Revisiting the Market Power–Risk Nexus*

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We analyze the impact of bank internationalization on domestic market power (Lerner index) and risk for German banks. Risk is measured by the official declaration of regulatory authorities that a bank is distressed. We distinguish the volume of foreign assets, the number of foreign countries, and different modes of foreign entry. Our analysis has three main results. First, higher market power is associated with lower risk. Second, holding assets in many countries reduce market power at home, but banks with a higher share of foreign assets exhibit higher market power. Third, bank internationalization is only weakly related to bank risk.

Keywords: F3, G21

Journal Article.  10740 words.  Illustrated.

Subjects: Financial Law ; Financial Institutions and Services ; Financial Markets

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