The recent ﬁnancial crisis has clearly shown that the relationship between bank internationalization and risk is complex. Multinational banks can beneﬁt from portfolio diversiﬁcation, reducing their overall riskiness, but this effect can be offset by incentives going in the opposite direction, leading them to take on excessive risks. Since both effects are grounded on solid theoretical arguments, the answer of what is the actual relationship between bank internationalization and risk is left to the empirical analysis. In this paper, we study such relationship in the period leading to the ﬁnancial crisis of 2007–2008. For a sample of 384 listed banks from 56 countries, we calculate two measures of risk for the period from 2001to 2007 – the expected default frequency (EDF), a market-based and forward-looking indicator, and the Z-score, a balance-sheet-based and backward-looking measure – and relate them to the degree of banks’ internationalization. We ﬁnd robust evidence that international diversiﬁcation increases bank risk.
|Digital Object Identifier (DOI):||http://dx.doi.org/10.1016/j.jfs.2014.02.007|
|Codice identificativo ISI:||WOS:000340976000003|
|Codice identificativo Scopus:||2-s2.0-84902538113|
|Appare nelle tipologie:||1.1 Articolo in rivista|