Choice of scale by banks in financial centers
Gulamhussen, Mohamed Azzim
Gulamhussen, Mohamed Azzim
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2007-08
Journal
International Business Review
Book
Publication Volume
16
Publication Issue
4
Publication Begin page
507
Publication End page
525
Publication Number of pages
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Abstract
The paper develops a theoretical link between foreign investment, scale and reversibility in the banking industry. This link is used to formulate hypotheses that are empirically examined with a unique data set collected through interviews with senior managers of multinational banks in London. Findings reveal that banks do not set up large operations to service domestic customers or get a foothold, but do so to create hubs. Banks with confident beliefs set up large operations, and use large offices to lock themselves into the market. These results explain the cross-sectional variation in the size of foreign investments in the industry. Robustness checks do not reveal presence of influential data points; regressions are stable over time and consistent with what we know from secondary samples.
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Keywords
3502 Banking, Finance and Investment, 35 Commerce, Management, Tourism and Services