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Cross-border branching in the Latin American banking sector

Cross-border branching in the Latin American banking sector PurposeBranching is not the only way for foreign banks to enter a national market, and it is impractical when there are informational and cultural barriers and asymmetries among countries. The purpose of this paper is to analyze the determinants of cross-border branching in the Latin American banking sector, a region with regulatory disparity and political and economic instability, offering elements to a grounded strategic decision.Design/methodology/approachThis study uses data from six Latin American countries. To account for the preponderance of zero counts, classes of zero-inflated models are applied (Poisson, negative binomial, and mixed). Model fit indicators obtained from differences between observed and estimated counts are used for comparisons, considering branches in each region established by banks from every other foreign region of the sample.FindingsBranching by foreign banks is positively correlated with the population, GDP per capita, household disposable income, and economic freedom score of the host country. The opposite holds for the unemployment rate and entry regulations of the host country.Originality/valueFew paper address cross-border banking in emerging economies. This paper analyzes cross-border branching in Latin America in the context of the current financial integration and bank strategy. Econometrically, its pioneering design allows modeling of inflation of zeros, over-dispersion, and the multilevel data structure. This design allowed testing of a novel country-level variable: the host country’s economic freedom score. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Bank Marketing Emerald Publishing

Cross-border branching in the Latin American banking sector

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0265-2323
DOI
10.1108/IJBM-01-2017-0003
Publisher site
See Article on Publisher Site

Abstract

PurposeBranching is not the only way for foreign banks to enter a national market, and it is impractical when there are informational and cultural barriers and asymmetries among countries. The purpose of this paper is to analyze the determinants of cross-border branching in the Latin American banking sector, a region with regulatory disparity and political and economic instability, offering elements to a grounded strategic decision.Design/methodology/approachThis study uses data from six Latin American countries. To account for the preponderance of zero counts, classes of zero-inflated models are applied (Poisson, negative binomial, and mixed). Model fit indicators obtained from differences between observed and estimated counts are used for comparisons, considering branches in each region established by banks from every other foreign region of the sample.FindingsBranching by foreign banks is positively correlated with the population, GDP per capita, household disposable income, and economic freedom score of the host country. The opposite holds for the unemployment rate and entry regulations of the host country.Originality/valueFew paper address cross-border banking in emerging economies. This paper analyzes cross-border branching in Latin America in the context of the current financial integration and bank strategy. Econometrically, its pioneering design allows modeling of inflation of zeros, over-dispersion, and the multilevel data structure. This design allowed testing of a novel country-level variable: the host country’s economic freedom score.

Journal

International Journal of Bank MarketingEmerald Publishing

Published: May 8, 2018

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