Location strategies of multinational banking under risk and asymmetric information

Abstract

PurposeInspired by the recent opening up of the Chinese banking market and by the ensuing location strategies adopted by foreign banks, the purpose of this paper is to develop an empirical analysis on location strategies. The paper enriches the existing literature by including many important realistic aspects, some of which have never been analyzed in theory before, especially for firms entering an unfamiliar and risky foreign market.Design/methodology/approachThe authors carried out an empirical study on foreign banks' entry to the newly opened up Chinese banking market and modelled location strategies of foreign banks in China as a conditional logit problem, in which the dependent variable is the market chosen by an investor. To investigate the determinants of foreign banks' location choices in China, the authors collected data of foreign banks' entries into China during 1980‐2006.FindingsThe main empirical results are: asymmetric information, firm size and entry sequence are significant determinants of foreign banks' location strategies.Originality/valueThe paper presents a new set of results.