This study proposes a foreign bank branch networks index (FBBNI) to capture bank-level exposure to competition from foreign banks in terms of geographical proximity. The index takes account of the rapidly expanding branch networks of both foreign and domestic banks in China. Based on data from a sample of three types of Chinese commercial banks from 2002 to 2011, we find that exposure to the branch networks of foreign banks is associated with improved profitability at domestic banks, higher efficiency, and increased non-interest income, consistent with knowledge transfer from foreign banks. These relationships are most pronounced for joint-stock domestic banks presumably because their ownership structure fosters knowledge transfer.
The authors are grateful, for their helpful comments and advice, to two anonymous referees, Angelica Gonzalez, Zhenyu Wu (discussant), and participants at the 3rd Conference on Chinese Capital Markets at University of Edinburgh Business School, July 2013.
- foreign exposure
- bank performance
- Chinese banking