Organizational mode choices of multinational banks abroad

Abstract

We investigate the determinants of organizational modes adopted by multinational banks abroad using a unique database of 98 parent banks and their organizational modes in 169 countries from 2005 to 2015. Our findings reveal that multinational banks operate in various organizational modes abroad, including multiple modes in a single host country; however, subsidiaries are the dominant mode of operation, followed by branches and simultaneously operating branches and subsidiaries in the host country. Furthermore, the characteristics of multinational banks play a significant role in determining their organizational decisions in a host country. Our results indicate that less profitable banks are less likely to open representative offices and are more likely to have branches. In contrast, multinational banks with high asset growth are more likely to operate a representative office abroad and less likely to open a subsidiary. These findings suggest that parent bank profitability and asset growth are important considerations when determining the optimal organizational mode of foreign expansion. Furthermore, country characteristics (particularly openness to economic and capital flows, institutional framework, and geographical and cultural distance) between host and home countries also influence foreign bank operations in a given host country.