Topics in multinational banking and international industrial organization [Elektronische Ressource] / vorgelegt von Peter Beermann

Peter Beermann

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2008
• Nombre de lectures: 14
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Topics in
Multinational Banking
and
International
Industrial Organization
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universitat¨
Munc¨ hen
2007
vorgelegt von
Peter Beermann
Referent: Professor Dr. Dalia Marin
Korreferent:or Dr. Monika Schnitzer
Promotionsabschlussberatung: 06. Februar 2008Contents
1 Introduction 1
2 Multinational Banking - A Literature survey and the case of
Bank Austria in Central and Eastern Europe 6
2.1 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Multinational banking - what do we know? . . . . . . . . . . . 7
2.2.1 Entry motives of multinational banks . . . . . . . . . . 7
2.2.2 Which banks become multinational? Firm and home
country characteristics . . . . . . . . . . . . . . . . . . 10
2.2.3 Which markets attract multinational banks? . . . . . . 12
2.2.4 How do the entry and market strategies of multina-
tional banks look like? . . . . . . . . . . . . . . . . . . 15
2.2.5 How successful are multinational banks operating in
foreign markets? . . . . . . . . . . . . . . . . . . . . . 19
2.2.6 What are the effects of multinational bank entry on
the host country? . . . . . . . . . . . . . . . . . . . . . 22
2.3 A case study of successful multinationalization: Bank Austria
Creditanstalt in Central and Eastern Europe . . . . . . . . . . 29
2.3.1 Overview of objects and sources of the case study . . . 29
2.3.2 Bank Austria Creditanstalt: An Overview . . . . . . . 30
2.3.3 Bank Austrialt in Eastern Europe . . . . . 31
2.3.4 Entry motives, entry modes and market strategy of
Bank Austria Creditanstalt in CEE . . . . . . . . . . . 32
2.3.5 The future strategy of Bank Austria Creditanstalt in
CEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.3.6 Sameregion,differentstrategy: ThecaseofErsteBank
AG in Central and Eastern Europe . . . . . . . . . . . 41
2.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3 M&AversusGreenfield-OptimalEntryModesintoMarkets
with Sequential Entry 47
I3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.2 The basic model . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.2.1 Analyzing entry (mode) decisions of the sequential en-
trant in period T=2 . . . . . . . . . . . . . . . . . . . 56
3.2.2 The optimal entry mode of the early mover. . . . . . . 61
3.2.3 Benchmark Case (No sequential entry) . . . . . . . . . 64
3.2.4 How does the threat of sequential entry change the
entry mode decision of early movers? . . . . . . . . . . 65
3.2.5 A note on completely endogenous market structure . . 68
3.3 Welfare analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.4 Markets with restricted takeover possibilities . . . . . . . . . . 71
3.5 Country-specific learning-by-doing effects . . . . . . . . . . . . 73
3.5.1 Sales volumes in period T=1 . . . . . . . . . . . . . . . 74
3.5.2 Sequential entry probabilities in period T=2 . . . . . . 74
3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4 When do Banks Follow their Customers Abroad? 84
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
4.2.1 Bank profit maximization under given liquidation value 91
4.2.2 Loan provision mode choice and endogenous liquida-
tion value . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.2.3 When do banks follow their customer abroad? . . . . . 104
4.3 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
5 The Effect of Bank Sector Consolidation through M&A on
Credit Supply to Small and Medium-Sized Enterprises 115
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5.2 Bank Sector Consolidation: An Overview . . . . . . . . . . . . 119
5.2.1 Revenue enhancement as a motive for bank sector M&A120
5.2.2 Cost saving as a motive for bank sector M&A . . . . . 121
5.2.3 EfficientRiskdiversificationasamotiveforbanksector
M&A. . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
5.2.4 Managerial motives for bank sector M&A. . . . . . . . 124
5.3 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
5.3.1 Inside the small bank . . . . . . . . . . . . . . . . . . . 128
5.3.2 Inside the large bank . . . . . . . . . . . . . . . . . . . 130
5.3.3 Small business financing in small and large banks . . . 138
5.4 The Role of Consolidation . . . . . . . . . . . . . . . . . . . . 139
5.4.1 Changing credit supply within the merged bank . . . . 140
5.4.2 SME credit supply at the market level . . . . . . . . . 141
II5.4.3 Smallfirmswithmultiplebankrelationships–Theodd
firm out . . . . . . . . . . . . . . . . . . . . . . . . . . 142
5.5 National versus Multinational Consolidation through M&A
and heterogeneous countries . . . . . . . . . . . . . . . . . . . 144
5.6 The Empirics of Small Business Lending and Consequences of
Bank M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
5.6.1 Characteristics of Small Business Lending . . . . . . . 146
5.6.2 Consequencesof(Cross-border)ConsolidationonSmall
Business Lending: The Existing Literature . . . . . . . 146
5.6.3 Bank sector consolidation and relationship manage-
ment strategies of small businesses . . . . . . . . . . . 149
5.7 Findings and Shortcomings. . . . . . . . . . . . . . . . . . . . 149
6 Conclusion and Outlook 157
Bibliography 162
III





List of Figures and Tables








1.1 Foreign Bank Control (% of assets)…………………………………………... …….2
2.1 BA-CA Operations in Central and Eastern Europe…………………………… …...32
2.2 Erste Bank AG Operations in Central and Eastern Europe…………………… …...42
3.1 Time Structure of the Model………………………………………………….. …...52
3.2 The General Structure of Entry Mode Decisions……………………………... …...55

3.3 The Effect of Early Entry Mode on Sequential Entry………………………… …...61
3.4 Comparison of Benchmark and Sequential Entry Case………………………. …..67

3.5 Contingent Sequential Entry Probabilities and Transport Costs……………… …..76
4.1 Time Structure of the Model………………………………………………….. …...91

4.2 Equilibrium Bank Strategies - The Case of Severely Cash-Strapped or
Moderately Cash-Strapped/Small Effort Problem firms……………………… ….108

4.3 Equilibrium Bank Strategies – The Case of Moderately Cash-Strapped Firms
with a Large Effort Problem…………………………………………………... ….108

5.1 Volume of M&A Activity in the Banking Sector…………………………….. ….116
5.2 Correlation Analysis of Bank ROE among Nations…………………………... ….124

5.3 Relationship Length and Specialisation Decision…………………………….. ….130
5.4 Bank-Firm Relationships Affected by M&A…………………………………. ….140






IV Acknowledgements
During the last years working on this thesis I have experienced immense
support, both academically and personally, by a large number of people.
First of all, I am deeply indebted to my supervisor Prof. Dalia Marin for
her wonderful support, giving me the opportunity to pursue my research as
a member of an exceptional faculty. She continuously encouraged me and
offered plenty of ideas for this thesis. Discussions with her were extremely
rewardingandinstructive. Moreover,hercontinuedrigorousdemandforclar-
ity in internal seminars really pushed my understanding and argumentation
to another level.
IamalsothankfultomycolleaguesAlexanderRaubold,ThorstenHansen,
MariaLehner,ChristaHainzandGeorgGebhardtforcountlessfruitfulscien-
tific discussions. Numerous other members of the faculty made this research
experience rewarding.
Special thanks go to Mr Gerhard Smoley, Ms Jana Schwarze and Mr
Christoph Schropp, whose exhaustive practitioner’s insights helped my un-
derstanding of the complex banking industry considerably.
I am deeply grateful to Ms Sabine Schmidberger for encouraging me to
keep working through numerous setbacks one experiences when developing
such a body of research. Last but not least I would like to thank my whole
family for supporting me throughout my academic career.
VChapter 1
Introduction
The ongoing integration of the world economy has not stopped at the real
sectors, buthasalsotakenplaceinthefinancialsector, whereboththecross-
border provision of financial services as well as the globalization of banks are
on the rise.
1Though no way a new phenomenon , the internationalisation and multi-
nationalisationofthebankingindustryhaspickedupsteam(again)inrecent
years, with the real new feature being the unprecedented scale of foreign di-
rect investment (FDI) in the banking sector.
This trend was aided by world-wide financial liberalization and deregula-
tion for the banking sector, an increased globalisation of the real sector and
technological advances reducing information costs in international financial
services activities (e.g. Soussa (2004)[121].
In some countries, primarily in Latin America and the former transition
economies in Central and Eastern Europe, foreign direct investment in the
banking sector has gone so far as foreign bank subsidiaries now being the
domin