Local Versus Foreign Banks: Capital Structure and the Financial Crisis

Abstract

Our paper examines the bank capital structure of French domestic and foreign banks. There are an apparent link between foreign presence and the capital structure of domestic firms. We check if the capital structure of a foreign banks is significantly different from domestic banks. Our dataset comprises 170 banks operating in the French market over the period 2000-2012. We estimate models with generalized method of moments (GMM). Our results show differences in the effect of most factors on the banks’ share of equity, according to the domestic and foreign banks. We find that specific bank’s characteristics and macroeconomic factors affect significantly the capital structure of domestic than foreign banks. All these findings are sensitive after taking into account the recent financial crisis. Thus, the foreign banks operating in France tend to be less debt level in crisis period and more profitable than French domestic banks.