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Country Characteristics in Foreign Bank Investments and Risk Taking: The Role of Shared Culture, Common Institutions and Geographic Proximity
Author(s) -
Owen Ann L.,
Temesvary Judit
Publication year - 2015
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12066
Subject(s) - proxy (statistics) , foreign direct investment , portfolio , causation , portfolio investment , geographical distance , business , financial system , economics , foreign portfolio investment , international economics , finance , political science , macroeconomics , sociology , open ended investment company , return on investment , demography , machine learning , production (economics) , computer science , law , population
We examine country characteristics in foreign bilateral banking relationships and explore how shared cultural heritage, common institutions and geographic proximity are related to banks’ foreign investment choices. Using a newly compiled data set on BIS‐reporting banks’ activities, we find that proximity and common institutional arrangements are the primary correlates of bilateral bank portfolio allocations. Information flow as measured by cross‐country phone calls is also strongly correlated with foreign bank investment, though the direction of causation is unclear. Trust between individuals in the two countries matters only as a proxy for other cultural similarities that are embedded in historical colonial relationships. We also find that the relationship between cross‐country bank regulatory differences and bank investments has changed in the aftermath of the financial crisis.