1 Why do foreign banks withdraw from other nations? Aneta Hryckiewicz 1 , Goethe University Frankfurt Oskar Kowalewski 2 , Warsaw School of Economics ABSTRACT This paper describes the trends in foreign bank ownership across the world and presents, for the first time, empirical evidence on the causes of multinational banks’ withdrawal from other countries. Using maximum likelihood estimation techniques and data on 81 closed foreign bank subsidiaries across 37 countries during 1999-2006, we show that problems encountered by the subsidiaries were not the main cause of divestment by the parent banks. Based on data for the parent banks of the closed subsidiaries, our results show that those banks reported significant financial weakness one year prior to the closing of the international operation. We therefore assume that a multinational bank’s decision to close a subsidiary in another nation is caused by problems in the home country rather than by weak performance of the subsidiary. Keywords: foreign banks, subsidiary, ownership, performance JEL-Classification: G21; G34; F2 1 Chair of International Banking and Finance, Johann Wolfgang Goethe University, P.O. Box 111932 (Uni-Pf. 66), 60054 Frankfurt am Main, Germany, e-mail: [email protected]2 Corresponding author: World Economy Research Institute, Warsaw School of Economics (SGH), Al. Niepodleglosci 162, 02-554 Warsaw, Poland, e-mail: [email protected]We thank Giuliano Iannotta, Adrian E. Tschoegl, Michael Ermann and seminar participants at the Johann Wolfgang Goethe University for their very helpful comments. The authors are grateful for the financial support of their research by CAREFIN - Center for Applied Research in Finance, Università Bocconi, Italy.
Transcript
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Why do foreign banks withdraw from other nations?
Aneta Hryckiewicz1, Goethe University Frankfurt
Oskar Kowalewski2, Warsaw School of Economics
ABSTRACT
This paper describes the trends in foreign bank ownership across the world and presents, for the first time, empirical evidence on the causes of multinational banks’ withdrawal from other countries. Using maximum likelihood estimation techniques and data on 81 closed foreign bank subsidiaries across 37 countries during 1999-2006, we show that problems encountered by the subsidiaries were not the main cause of divestment by the parent banks. Based on data for the parent banks of the closed subsidiaries, our results show that those banks reported significant financial weakness one year prior to the closing of the international operation. We therefore assume that a multinational bank’s decision to close a subsidiary in another nation is caused by problems in the home country rather than by weak performance of the subsidiary.
2 Corresponding author: World Economy Research Institute, Warsaw School of Economics (SGH), Al. Niepodleglosci 162, 02-554 Warsaw, Poland, e-mail: [email protected]
We thank Giuliano Iannotta, Adrian E. Tschoegl, Michael Ermann and seminar participants at the Johann Wolfgang Goethe University for their very helpful comments. The authors are grateful for the financial support of their research by CAREFIN - Center for Applied Research in Finance, Università Bocconi, Italy.
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1. Introduction
The end of 19th and early 20th centuries was characterized by the increased foreign banking
participation in the domestic banking sectors outside of Europe and North America. According to
Goldsmiths (1969) these foreign banks disappeared at one time from the host countries. But he does
not provide any more details why it happened. We therefore do not know if whether the history might
repeat itself and the importance of multinational banks could decline once again in those countries that
have a strong foreign banking presence today.
Surprisingly, in the existing literature on multinational banking, there are no empirical studies
regarding the factors that might lead to closing foreign subsidiaries or withdrawal of foreign banks
from the host countries. There are also no specific studies examining the motivation behind the
decision of parent banks’ closure of the foreign subsidiary. Therefore, the aim of this study is to fulfill
the gap in the multinational banking literature and to establish the possible determinants and
motivation behind parent banks’ closure of foreign bank subsidiaries.
To examine this, we first constructed a database that links the withdrawal event with balance sheet
information from a closed foreign bank subsidiary. We identified 81 withdrawal activities related to
closing or selling a foreign bank subsidiary, all of which took place in 37 countries between 1999 to
2006. In our sample, most of the foreign bank subsidiaries were liquidated by their parent banks
through a sale to a domestic or foreign investor. The majority of those transactions were conducted in
developing countries, and the parent banks were mostly from industrialized countries. This is not
surprising, since in the last two decades we have seen a surge in foreign banks’ share of emerging and
transition economies. The majority of foreign direct investments in those countries come from
multinational banks headquartered in developed countries (Horen van, 2007).
In our opinion, there may be two main reasons for the past divestment of foreign subsidiaries by
parent banks. The first is the low profitability or financial distress of the foreign subsidiary in the host
country. The second are the financial problems of the parent bank in its home country, which may
force it to close or sell the foreign subsidiary in order to increase its own capital. Also, the recent sell-
offs of foreign operations, as a sale of the Citibank subsidiary in Germany to the French Credit Mutuel
at the end of 2008 or a divestment of AIG foreign operations from several European countries, are in
our opinion largely motivated by the second hypothesis, which suggests problems faced by the parent
bank in the home country.
In our paper, we employ maximum likelihood techniques to establish which of the two motivations
explains the closing of foreign subsidiaries in recent years. Therefore, in our regressions, we use a
sample of closed foreign bank subsidiaries and their parent banks. In the first set of regressions, we
use the foreign subsidiaries and a control group of domestic banks from the host country. The results
of this regression allow us to test the first hypothesis, which suggests low profitability or negative
results of the foreign subsidiary as the main cause for its closing. In the second set of regressions, we
examine the parent banks and a control group of domestic banks from the home country. Using this
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sample, we are able to test the second hypothesis, which states that the closings are triggered by
problems faced by the parent banks in the home country. We ensure that our findings are robust by
subjecting them to robustness checks that use alternative econometric methods, changing the
specifications of the dependent and exogenous variables, and altering our sample data. The main
results of our study remained unaffected throughout all of these robustness checks.
The results suggest that foreign banks tend to close foreign subsidiaries due to domestic problems
in the home country and not due to problems in the host country. Our results are reinforced by the fact
that we find no evidence that the closed foreign subsidiaries had encountered financial problems or
lower profitability than the control samples prior to closing. At the same time, our results suggest that
the parent bank may have encountered negative results one year prior to the subsidiary’s closing.
Thus, the findings suggest that the closing of subsidiaries may have been associated with a decline in
the financial performance of the parent banks in the home country rather than with problems with the
subsidiaries themselves. In the past, this explanation for the decline of foreign banks’ share abroad
was presented by Tschoegl (2005) and by Peek and Rosengren (2000). However, their work was
mainly based on case studies and they failed to provided any empirical evidence for their assumptions.
The remainder of the paper is organized as follows. Section 2 reviews the relevant literature on
withdrawal decisions of foreign banks in general and presents our main hypotheses. Section 3
describes the sample data regarding foreign subsidiaries and parent banks and presents the variables
employed in our analysis. Section 4 discusses the logit and probit methodology used in the
regressions. Section 5 summarizes the empirical results, and Section 6 concludes.
2. Motivation for the decision to withdraw
In the last few decades, many countries, particularly those with developing economies, have
embraced financial globalization and welcomed foreign banks into their banking sectors. In
developing countries, this has largely been led by the privatization of state-owned banks and the
rescue of distressed domestic financial institutions. Micco, Panizza, and Yañez (2004) report that the
average level of foreign bank participation among developing countries rose from 18 percent to 33
percent of total banking assets between 1995 and 2002. In the transition economies of Central and
Eastern Europe, foreign ownership share of total banking assets increased even more from 10 percent
in 1995 to 80 percent in 2000. In some transition economies, such as those of the Baltic States, foreign
ownership is currently close to 100 percent (Hryckiewicz and Kowalewski, 2008).
The existing literature shows that local market opportunities are a major factor in enticing foreign
banks into new markets (Dunning, 1977). Dopico and Wilcox (2002) report that foreign banks are
more pervasive in countries where banking is more profitable and where the banking sector is smaller
relative to GDP. Demirgüç-Kunt and Huizinga (1999) and Claessens et al. (2001) find that foreign
banks tend to have higher margins and profits than do domestic banks in developing countries, but that
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the opposite holds in industrialized nations. These results might explain why foreign banks have been
especially attracted to developing countries in the last two decades.
However, as the evolution of the host markets slowly erodes comparative advantage, the
profitability of a foreign bank subsidiary may decline. The decline in profitability may motivate the
parent bank to close or sell its foreign subsidiary. Indeed, the experience of several developing
countries has shown that declining margins were a reason why some foreign banks decided to close
their operations in these countries. For example, in 2003 the Spanish Banco Bilbao Vizcaya Argentaria
(BBVA) sold its Brazilian operations to Bradesco after realizing that it would be too expensive to
achieve an asset size to be profitable (Tschoegl, 2005).
The studies on the behavior of foreign banks during the financial crises provide mixed evidences.
On the one hand, Tschoegl (2005) argues that parent banks may sell the subsidiary when host country
markets are depressed and the risk of staying abroad for a parent bank is too high. Hence, foreign
banks might depart quickly from any host markets that face political, economic or financial crises, as it
was in the case of Asia in 1997 or Latin America in 1999. This is because crises often result in the
erosion of the economic potential of the host country, frequently causing foreign banks to suffer
during a general downturn. Specifically, Crystal et al. (2001) and Dages et al. (2000) provide the
examples on behavior of parent banks during the Argentina crisis. They show that closure of the
French Crédit Agricole and the Canadian Scotiabank in Argentina has been mainly motivated by the
weak financial situation of their subsidiaries, as a result of crisis. In both cases, the parent banks were
unwilling to recapitalize failed subsidiaries and decided to withdraw their operations turning their
subsidiaries over to the Argentine government for rescue.
On the other hand, some academic studies suggest that foreign banks tend to be not as heavily
impacted by crises as the domestic banks, in part because they are often more conservative in their
lending (Crystal et al., 2001). For example, Dages et al. (2000) show that the foreign banks in
Argentina and Mexico period exhibited stronger and less volatile loan growth over the 1994-99 than
did domestic banks. There are also some studies which claim that foreign banks use economic crises
and distortions in the banking industry in order to increase their market share in the existing market or
enter new one. Peek and Rosengren (2000) found evidence that as a result of liberalizations and of the
worsening conditions in domestic markets, foreign banks expanded in several Latin American
countries. Consistent with this result, Guille´n and Tschoegl (2000) found that Spanish banks have
increased their ownership in Argentina’s banks during the economic crisis of the last decade. Also,
Engwall et al. (2001) found that foreign banks started to increase their market share in Norway during
the Scandinavian banking crisis in the early 1990s, reducing at the same time their presence in
Sweden.
So, the divestment of a foreign bank subsidiary can be related either to a decrease of market
opportunities in the host country or to a poor performance of a foreign subsidiary. Hence, based on the
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results above, our first hypothesis assumes that foreign banks’ subsidiaries may be closed in host
countries due to a decline in profitability or in the event of an increased likelihood of failure.
The decision on withdrawal of banking operations from foreign markets might also be made due to
the problems of the parent banks. A change in the parent company’s strategy or legal requirements
may motivate a parent bank to divest their operations from the foreign markets. For example, Tschoegl
(2004) reports that the British Lloyds Bank decided to withdraw from California when Brian Pitman
was appointed as CEO in 1983. As a result, he decided to divest international assets and refocus on the
domestic retail market. In addition, at this time, some other British banks were also departing from
California to focus on their operations at home. Also, an example of Banca Intesa presents how the
change of strategy may affect the foreign operations. The appointment of the new CEO in 2002,
Corrado Passera, has resulted in refocusing of operations of a parent bank on the domestic market and
divesting its foreign subsidiaries in Europe, South America and North America. However, this was
also partly caused by the financial problems of a parent bank.
The strategic change toward focusing on the domestic markets and divesting foreign subsidiaries
can also be a result of poor performance of foreign operations. This was the case in Argentina, where
several parent banks decided to withdraw from this country and to concentrate on the domestic market,
when they reported a weak financial performance of their foreign subsidiaries. Also, Tschoegl (2004)
reports on the divestment of Californian subsidiaries of British Midland Bank, Lloyds Bank and
Barclays Bank between 1986 and 1988 and change of a parent strategy as a result of weak financial
results of their Californian operations.
On the other hand, parent banks may decide to close or sale their foreign subsidiaries due to their
own financial problems. Peek and Rosengren (2000) investigate how the financial crisis in Japan in the
early 1990s had an effect on lending by Japanese banks in the United States. They show that the
position of Japanese banks in the US banking sector declined after the financial crisis in 1990. Similar
results have also been presented by Tschoegl (2004), who demonstrated that the assets of Japanese
bank subsidiaries peaked in the early 1990s in California and after that was subsequently falling. In
addition, many Japanese banks decided to leave California as Japan’s economic problems intensified.
For example, Sumitomo Bank sold in 1999 the Californian subsidiary to Zions Bancorp. In 2001 UFJ
Holdings sold United California Bank, California's fourth-largest bank, to BancWest, a subsidiary of
Banque Nationale de Paris Paribas. Of the eight subsidiaries that Japanese banks established in
California between 1952 and 1978, only three are still in existence today, the rest having disappeared
through mergers with survivors or through acquisitions. The history of Japanese banks in California
shows that those parent banks that sold their subsidiaries did so rather as a result of problems in their
home nations than because of problems with their foreign operations. These Japanese banks sold their
foreign operations to reduce costs and raise capital as the problems in their home country intensified
due to the collapse of the stock market and land price bubbles. As the Japanese economy stagnated,
the Japanese banks, beset by domestic problem loans, reevaluated their international investments
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(Tschoegl, 2004). Another example presents Banca Intesa, one of Italy's largest and most international
banks, which disposed most of its European, South and North American foreign operations in the
years 2001-2004. The divestment was a result of the declining profitability and the growing problems
of bad loans and higher overhead costs experienced by a parent bank during this period.
The closing or sale of foreign subsidiaries can also be a result of the collapse of the parent bank.
For example, when Banco Ambrosiano, an Italian bank, collapsed in 1982, the Italian authorities
protected Italian depositors by transferring the bank's business to a new Italian entity. However, they
disclaimed responsibility for the obligations of Ambrosiano’s Luxembourgian and Latin American
subsidiaries. On the contrary, when Demirbank failed in Turkey in 2000, its subsidiary in Bulgaria
continued to function, and there was no run on the foreign bank subsidiary. Instead, the Bulgarian
subsidiary was simply an asset that the Turkish authorities sold in the process of liquidating the failed
parent bank (Tschoegl, 2005).
Based on these studies on foreign parent bank behavior, we put forward our second hypothesis,
which holds that the closure of foreign banks’ subsidiaries is a result of difficulties encountered by the
parent bank. So, we can expect that the likelihood of closing a foreign bank subsidiary will increase as
the profitability of the parent bank decreases.
3. Data and summary statistics
We assembled an original database of the withdrawal of parent banks from host countries across
the world in the years 1999-2006. In our study, we define a parent bank withdrawal from a host
country as a parent bank closing or selling its subsidiary to either a domestic or foreign investor. We
consider the term “foreign bank subsidiaries” to mean locally incorporated banks with over 50 percent
foreign ownership. To be included as a subsidiary in the final sample, foreign banks had to have
financial data in BankScope for the period of withdrawal and needed to be classified as commercial
banks. In our study, we excluded bank branches, savings banks and agencies of foreign banking
organizations to avoid inconsistencies in the format of financial statements among different types of
banks and across multiple countries.
Based on these criteria, we identified 83 foreign bank withdrawals in 37 different countries during
the period 1999-2006. In our empirical analysis, the loss of observations from the original sample was
the result of missing financial data in BankScope. As a result, our sample was reduced to 48 cases of
foreign bank withdrawal – in these 48 instances, we were able to retrieve the financial statements for
the year when the subsidiary was closed or the period of two years prior to this event.
Table 1 lists the identified closures of foreign bank subsidiaries in host countries. The table
illustrates that the greatest number of closures were in Latin American and Central Europe. This is not
surprising, as those two regions also have reported the greatest number of foreign bank operations in
the last two decades (Cerutti et al., 2007).
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[Table 1]
Argentina and Indonesia feature the most foreign bank subsidiary closures. In the period 1999-2006
there were nine foreign bank subsidiaries closed in Argentina, seven in Indonesia and five in Romania.
Note that approximately half of the closures in Latin America and Asia in the eight-year sample period
occurred in the years 2001-2002. The large number of closures in this period may be associated with
the financial crises in emerging markets that started in Asia in 1997, spilling over in the following year
into Russia and two years later into Brazil. Shortly thereafter, the financial crisis enveloped the Latin
American continent. Simultaneously, in 2001, most industrialized countries went into a mild recession
caused by the crash of the internet bubble and the bankruptcy of internet and technology companies
across the world. As a consequence, the profitability of the parent banks shrank – an event that may
have prompted the divestment of international subsidiaries.
Based on our sample and including closed foreign bank subsidiaries, we constructed our second
dataset to examine the origins of the parent banks. This dataset was used to test whether parent bank
problems may have led to closures of foreign operations. In our dataset, we counted the parent bank
only once regardless of how many subsidiaries were sold or closed in a given year.
For example, the Dutch ABN Amro was counted only three times between 2000 and 2002 in our
sample, even though the number of subsidiaries closed by the bank was substantially higher than that.
During this period, the bank’s strategy was to allocate its resources to those markets that generated the
highest possible profits for its clients and shareholders and to exit those markets that failed to fit that
framework. As a result, ABN Amro sold all its foreign operations in Aruba, Bahrain, Bolivia,
Ecuador, Kenya, Morocco, Lebanon, Panama, Sri Lanka and Suriname in the years 2000-2002.
Additionally, its retail operations in Argentina, Chile, the Philippines and Venezuela as well as
onshore banking activities in the Netherlands, Antilles, and the retail and brokerage business in Greece
were sold. However, in our sample, we counted ABN Amro only once each year, as we were
interested only in registering the parent bank, which was shuttering its foreign operations, and not the
number of closed subsidiaries.
In addition, we also listed the parent bank even if the closure of a subsidiary was actually
implemented by another foreign subsidiary that was owned by the parent bank. Since 2001, the Italian
Banca Intesa closed several of its operations in South and North America. These foreign operations
were controlled by Banque Sudameris, a subsidiary of Banca Intesa that is located in France.
However, we counted the sale of Banque Sudameris operations abroad as divestments of Banca
Intensa.
Table 2 shows the number of identified parent banks that decided to divest a foreign bank
subsidiary in the years 1999-2006. The table illustrates that over this period the highest number of
parent bank withdrawals was from Western European countries. Eight disposal decisions were taken
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by German parent banks and six by French parent banks. However, these numbers to do not reflect the
scale of foreign bank divestments, as explained above.
[Table 2]
3.1 Choice of variables
We decided to build our empirical model loosely based on the literature regarding bank failures and
acquisitions.
Following two studies of bank failures (Martin, 1977; Wheelock and Wilson, 2000), based on the
availability of data, and keeping in mind that we pool a sample across several countries, we selected
eight variables that cover most aspects of bank performance and may serve as proxies for the basic
motives behind divestment decisions. We measured capital strength, asset quality, liquidity,
profitability and efficiency. These five ratios originate from the CAMEL system used by US
regulators to identify at-risk banks. The remaining three variables cover additional financial
characteristics, such as size, asset growth and loan activity, and are often considered in the literature
on bank acquisition (Wheelock and Wilson, 2004).
Table 3 presents a list of the variables used in the present study along with the bank characteristics
that they measure. These proxies are fairly standard measures of bank condition that regulators,
investors, and other interested parties normally monitor over time for performance evaluations.
[TABLE 3]
Consistent with previous studies, we use the logarithm of total assets as a measure of size (Size) for
our regressions. This may have an impact on closure likelihood for numerous reasons. First, large
subsidiaries may be less likely to be closed by the parent bank, as they should be more profitable due
to scale. Second, large subsidiaries should have a greater impact on the profitability of the parent bank.
In contrast, in the case of a large subsidiary running into difficulties, these could significantly impact
the parent bank’s performance. Furthermore, large parent banks are more likely to have a wide
international network, which can be divested in order to increase capital availability. Hence, it is
difficult to determine a priori what will be the impact of size on the likelihood of closing a foreign
bank’s subsidiary.
As for asset growth, Kocagil et al. (2002) point out that some banks whose asset growth rates were
relatively high may experience problems because their management or structure were not able to deal
with and sustain exceptional growth. They back up these conclusions with empirical data. With high
asset growth the likelihood of financial problems increases. In line with existing studies, we represent
the influence of bank growth by the annual change of the bank’s total assets (AGrowth).
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Wheelock and Wilson (2000) suggest that the lower a bank’s capitalization, the greater the
probability that the bank will disappear. They argue that this is true both in the case of the acquisition
of failing banks prior to insolvency and with the purchase of banks by skillful managers who are able
to operate successfully with high leverage. In our study, capital strength is represented by the equity to
assets ratio (Equity), which measures the amount of protection offered to the bank by its equity.
Net loans divided by total assets indicates the percentage of bank assets that are tied up in loans
(Loans). In our study, this ratio is used as an indicator of loan activity (Hannan and Rhoades, 1987;
Moore, 1996). Hannan and Rhoades (1987) suggest that, on the one hand, a high loan rate would seem
to indicate aggressive behavior by the bank, while on the other hand, a low loan rate may indicate a
bank that has a conservative or complacent management team.
Another important aspect that can influence the likelihood of closing is a bank’s liquidity position.
We assume that banks that are particularly illiquid may find it difficult to avoid closing or may be
willing to be acquired, because they have moved into liquidity problems that are difficult to overcome.
In our study, we consider the ratio of liquid assets divided by customers and short term funding
(Liquidity), which measures the percentage of the latter that can be met almost on demand.
Bank weakness and closing can be attributed to poor management, as manifested in excessive
credit and worsening loan quality. As a measure of loan quality in our study, we use the ratio of loan
loss provision to net interest revenue (LQuality). An increase in this ratio represents poor loan quality,
which should increase the odds of closing.
Finally, bank problems and closures of foreign subsidiaries may be caused by bad management.
Poorly managed banks are more likely to be closed or acquired by those who think that they can
manage them more efficiently. In our study, we consider two measures of managerial performance, of
which one represents profitability and the other cost efficiency. The profitability measure is return on
average assets (ROA), calculated as net profit divided by average total assets. An increase in this ratio
should lower the odds of closing. As a measure of expense management efficiency, we use the cost to
income ratio, which measures the proportion of income to expenditures (Costs).
3.2 Bank control sample
In the literature on bank failure and acquisition, there is no single method for choosing the control
sample. Following the study by Platt and Platt (1990) on bankruptcy prediction, we applied industry
relative ratios to the data sample to calculate industry-specific differences. In our study, we matched
the control sample with a group of peer domestic banks from the host and home countries in terms of
assets, based on the financial statement for the year in which a foreign subsidiary closed.
In case of the closed subsidiaries, we additionally used a peer group sample of other parent bank
subsidiaries that were not closed during the period of interest. This peer sample of bank subsidiaries
allows us to control for parent-specific operations, but we elected not to control for country-specific
characteristics.
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In the academic literature, there are mixed results as to whether matched data are better than
random data. Cudd and Duggal (2000) present data that depend strongly on the distributional
characteristics and on the definition of a dummy industry disturbance variable. Asterbo and Winter
(2001) report that models with industry-adjusted variables performed worse than those with non-
adjusted variables. Barnes (2000) reports that raw accounting ratios and industry-relative ratios based
on the same underlying data generate significantly different forecasts using the same statistical
techniques. Therefore, in our study we decided to use both industry-matched control samples and
control samples with random banks to investigate the likelihood of a foreign subsidiary being closed.
3.3 Descriptive statistics
3.3.1 Closed foreign bank subsidiaries in the host countries
The sample of foreign banks in terms of closure probabilities consisted of 48 subsidiaries that were
closed in the host country in the years 1999 through 2006. Closed subsidiaries were defined as
commercial banks that were closed or sold to another domestic or foreign investor by the parent bank.
The closed foreign banks were matched with the control sample of local banks of similar asset sizes
and characteristics. We later expanded the control sample by randomly adding one or two domestic
banks depending on the availability of data for the country and period.
In the asset-matched control sample as well the random sample the domestic banks were
commercial banks still operating in the host country. These included foreign bank subsidiaries,
privately owned domestic banks and state-owned banks. In both control samples, the matching criteria
used in our study were time and country, so that direct comparisons between closed foreign banks and
operational domestic banks could be made without a need to adjust for time and country effects.
Table 4 lists the independent variables and their mean values for the sample of closures and the two
control samples of domestic banks for the year of closure and for one year prior to that event.
[TABLE 4]
The univariate statistics suggest that closed foreign subsidiaries on average are more profitable than
local commercial banks. The higher profitability of the closed foreign subsidiaries may be attributed to
the lower costs of nonperforming loans. On the other hand, foreign subsidiaries on average have a
lower proportion of loans and a higher level of liquidity. Higher liquidity and equity ratios of foreign
subsidiaries suggests a lower likelihood of financial distress. However, the asset growth of foreign
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subsidiaries is on average lower than that of local banks. In addition, foreign subsidiaries report a
lower cost to income ratio than local banks only in the year prior to closing. The increase of the cost to
income ratio in the year of the subsidiaries’ closure may be attributed to one-time charges caused by
the divestment of the subsidiary by the parent bank.
Overall, the results of the univariate statistic do not present any significant differences between
closed foreign subsidiaries and still-operational domestic banks, which may explain the motivation for
a parent bank closing a subsidiary. Our closures report higher profitability, equity ratios and liquidity
than local banks, which speaks against significant financial distress. As a result, based on these results
we might conclude that parent bank problems are more likely than subsidiary problems to be the main
cause for closing the subsidiary.
3.3.2 Parent banks and domestic banks in the home country
As shown in Table 5, the mean values of the independent variables for the parent banks are
significantly different from those of local banks in the home country in a number of cases. Denoted by
asterisks, the profitability variable has significant t-statistics for mean differences between parent
banks and asset-matched local banks, as well as the randomly chosen banks in the control sample. The
control sample contains randomly chosen commercial banks from the home country that are also on
average larger in terms of asset size and report greater asset growth than parent banks.
[TABLE 5]
Table 5 suggests that parent banks reported financial losses one year prior to closing a foreign
subsidiary. One year later, the parent banks report positive financial results again, but their
profitability remains, on average, lower than those of local banks in either of the control samples. The
significant increase in profitability may be attributed to the divestment of foreign subsidiaries since the
liquidity of the parent bank also increases substantially. However, the liquidity of the parent banks
remains lower than that of banks from either control sample.
After the divestment of the subsidiary, an improved financial standing of the parent banks is
reflected in the capital ratio. One year prior to the closure of the subsidiary, the parent banks are less
well-capitalized than their domestic peers in both control samples. After the divestment of the foreign
subsidiary, the capital ratio of the parent banks increases and exceeds that of the domestic banks in the
control samples.
On average, parent banks also report higher loan ratios, which may indicate a higher degree of risk.
However, the ratio of nonperforming loans is lower for the parent banks than for the peer banks in the
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control samples. On the other hand, on average, parent banks exhibit a higher cost to income ratio,
which may be attributed to lower efficiency.
The univariate statistics may to a certain extent confirm our assumptions that the closure of a
foreign subsidiary is caused by problems with the home operation rather than by problems in the host
country. This is suggested by the evidence that prior to closing the foreign subsidiary, parent banks
report negative results, which improve in the year of divestment.
4. Empirical model
We estimate a closure of a foreign subsidiary using the maximum likelihood estimation technique.
Maximum likelihood estimation is advantageous mainly because the statistical properties of the
estimators are both known and desirable. Maximum likelihood estimators are consistent,
asymptotically efficient, and have known asymptotic sampling distributions.
Two maximum likelihood estimation techniques appropriate for binary choice problems are the
logit and probit models. The objective of both models is to determine the probability that a subsidiary
will be closed given a set of data. This probability is also assumed to be a linear function of a set of
independent variables. The two models are indeed very similar in form and are both based on the
maximum likelihood estimation technique (Pindyck and Rubinfeld, 1976).
In previous studies on bank failures, the linear probability model and linear discriminant analyses
have also been used. However, the choice among the existing models is an empirical issue, and a study
on the failure of small commercial banks by Crowley and Loviscek (1990) shows that the logit and
probit models offer an advantage over the more frequently used discriminant analysis. Crowley and
Loviscek (1990), employing the four models and a small sample of bank failures, have reported that of
the four functional forms used in previous studies, the logit and probit models should be preferred over
the alternatives. In their study, those two models have offered the highest accuracies and nearly
identical results, suggesting that the models might be interchangeable. As our study also incorporates a
small sample size, we also decided to employ the logit and probit model instead of the more frequently
used discriminant analysis.
The major difference between the two models is that probit is based on the cumulative normal
probability function, while logit is based on the cumulative logistic probability function. The logistic
function is more appealing since it is very similar in form to the cumulative normal function but is
computationally more tractable. A unique maximum always exists for the logit model, and almost any
non-linear estimation routine will find the estimated parameters (Pindyck and Rubinfeld, 1976). The
logit models predict the posterior (conditional) probability of closure given a set of independent
variables for that bank:
log�P� 1 − P�⁄ = α + β�X� + β�X�,��� (1)
13
where Pi is the probability that bank i will be closed, Xj is the set of the jth independent variable in the
year of closing the subsidiary and Xj, t-1 one year prior to it , and b is the coefficient of the independent
variables. The coefficient measures the effect on the odds of closure based on a unit change in the
corresponding independent variables.
As a second estimation technique, we utilize the probit model to identify the probability of closing
a foreign bank subsidiary. The results of the probit model are compared with those of the logit model
to assess the robustness of our results.
The motivation for the probit model in this context is as follows. The decision of the parent bank to
close a subsidiary is a function of an unobservable “utility index” Ii, which is itself determined by the
explanatory variables included in the model to capture the effects of a bank’s condition - including
measures of profitability, efficiency, liquidity, loan quality and capital adequacy. This may be written
as
I� = XB (2)
where X is a vector of bank characteristics and b is a vector of corresponding estimated coefficients.
Given the specification in equation (2), the estimated probability that the foreign bank subsidiary will
be closed in country i is:
Pr �Y� = I = Pr �I�∗ ≤ Y� = F�I� (3)
We used two specifications of the logit and probit model in equations (1) and (2) as we test two
different hypotheses that explain the motivation of the parent bank to close a foreign subsidiary.
5. Results
This section is split into two parts. The first subsection presents results regarding the likelihood of
closing a foreign bank subsidiary using the closed foreign bank subsidiary dataset and a control
sample matched by asset size and, separately, a randomly chosen group of domestic banks from the
host country. The second subsection shows the results of the estimations using the parent bank dataset
and a control sample of local banks matched by asset size, as well as a sample including a group of
randomly-matched domestic banks from the home country.
In all of the regressions, the loss of data from an original sample of 49 instances was the result of
missing values for the foreign subsidiaries, parent banks or the asset-matched control sample.
Tables 6-8 report the results for both the logit and probit estimations. When logit and probit results
are used, Maddala (1988) suggests that their coefficients be scaled so that they can be compared. The
procedure of scaling the logit models so that their coefficients can be compared to the probit model
requires that all coefficients be multiplied by 0.625. After scaling the results in this manner, the
coefficients of the logit are nearly identical to the coefficients in the probit model.
All regressions are estimated with robust standard errors, allowing for the possibility that
observations for the banks may not be independent. Most coefficients have the expected sign, yet only
14
a few of these are statistical significant. The summary statistics for the regression show better
statistical properties when the asset-matched control sample is used in both models.
The estimated coefficients themselves do not indicate a change in the probability of the event
occurring given a one unit change in the relevant explanatory variable. The sign of the estimated
coefficient only indicates the direction of the change in probability. The size of the change in
probability will differ based upon the initial values of all the explanatory variables and their
coefficients. Thus, it is conventional to evaluate the explanatory variables given their mean values, as
a basis for inferring a change in probability. Consequently, in Tables 6-8, the last column presents the
elasticity at means, which indicates the percentage change in the probability of closing a foreign bank
subsidiary as a result of a one percent change in the relevant explanatory variable, when all variables
are evaluated around their mean values.
5.1 Closed foreign bank subsidiary in the host country
Table 6 reports the estimated logit and probit models using data from the year of the foreign bank
subsidiaries’ closing and data from one year lagged. Where asset-matched peer group was used, only
six of eight independent variables were statistically significant.
[TABLE 6]
The results show that the profitability of the subsidiaries may not be the main reason for
divestment. In the year of the foreign subsidiaries’ closure and one year prior, the coefficient of return
on assets was positive. It was also highly statistically significant one year prior of the subsidiary’s
closure.
In addition, in the year of the subsidiary’s closing, the coefficients of the equity ratio and loans
were positive and statistically significant. However, one year prior to closure, those coefficients were
negative and also statistically significant. The change in the sign of the coefficient may suggest a
change in banking policy caused by the divestment and new ownership of the foreign subsidiary. Also,
the coefficients of asset size and growth change their sign between these periods, which may confirm
the change in the scope of banking operations.
One year prior to closure, the loans coefficient is positive and statistically significant. In the year of
closure, it changes its sign and remains statistically significant. It is interesting to note that the
provision for problem loans also changes its sign and remains significant. However, as mentioned,
these changes may signal a new operational policy in the year of divestment, probably on account of
the new ownership.
Only the coefficient for the cost-to-income ratio is positive and does not change its sign between
the two periods. The positive cost-to-income ratio may suggest the higher operating costs of the
15
foreign subsidiary – consistent with reports in the literature. The ratio may also be affected by
restructuring charges incurred by the parent bank and the possible new owner of the subsidiary, which
may explain why it remains positive and significant for both periods.
Overall, the results do not provide any evidence that the likelihood of closing a foreign bank
subsidiary can increase due to financial problems. Indeed, the coefficient for return on assets is
positive and statistically significant. However, other coefficients may signal that there is some risk to
the subsidiary’s continued viability one year prior to divestment. The statistics show that both models
are significant for the asset-matched peer group. In contrast, the summary statistics show weak
statistical properties when the random group is used as a control sample, even as the number of
observations increases significantly. Therefore, the results indicate that the asset-matched control
group may offer an advantage over the randomly chosen sample control group.
5.1.1 Sensitivity
Since the results do not reveal any significant problems with the subsidiaries, we conclude that
closure may be motivated by weakness or problems with the parent bank in the home country.
However, before testing the second hypothesis, we decided to conduct a sensitivity analysis on our
existing results. In the sensitivity analysis, we used, as a control sample, the data for other foreign
subsidiaries of a parent bank that were still operating abroad. Again, we matched the closed
subsidiaries by asset size to the control group consisting of operating foreign subsidiaries. We then
expanded the control sample, incorporating other randomly selected foreign subsidiaries of the parent
bank. However, the foreign subsidiary sample size is much smaller, as some of the parent banks did
not have any other foreign subsidiaries – resulting in a reduction of available data.
Table 7 reports the results of the logit and probit regressions that identify characteristics associated
with closed foreign subsidiaries relative to the operating foreign subsidiaries of the parent banks in
other host countries. Our results show no significant differences between the closed and operational
foreign subsidiaries. With the matched sample in the probit regression, the ratio of equity becomes
positive in the year of closure. However, when the randomly matched sample is used, the coefficient
of loans and liquidity is statistical significant. Again, the ratio of loans and liquidity in the year of
closure change their signs, which may signal a change in the operating strategy of the closed
subsidiary in the host country. Also, the coefficient of return on assets is statistically significant in the
regression one year prior to closing, however yet at the ten percent level.
[Table 7]
5.2 Parent banks and domestic banks in the home country
16
Table 8 reports the results of the logit and probit estimation using the parent banks and domestic
banks in the home country matched by asset size and also randomly chosen.
[TABLE 8]
The results show that one year prior to subsidiary closure, the coefficient of the parent bank’s
return on assets is negative and statistically significant. In the year of closure, it changes sign, but
becomes insignificant. Also, the coefficient of asset growth is negative and statistically significant for
the parent bank one year prior to the closure of the foreign subsidiary. In the year of closure, it remains
negative and becomes to be statistical insignificant. Thus, the results reveals that the likelihood of
closing a foreign subsidiary increases when the parent bank reports negative results one year prior. In
addition, the negative coefficient of asset growth may signal a policy of scaling down the operations of
the parent bank in the year prior to the closure of operations abroad.
Our results are strengthened by the fact that the coefficients improve in the year of closure. The
improvements in profitability may be attributed to cash inflows from the divestments of operations
abroad or from the associated reduced maintenance costs.
The summary statistics for both models again suggest that the asset-matched control sample
provided more significant and probably more reliable results than the randomly matched sample.
Nevertheless, both models and control samples offered almost identical results. Therefore, we believe
that a parent bank’s decision to close foreign subsidiaries may be motivated by problems in the home
country. Our results suggest that the likelihood of parent banks closing their foreign subsidiaries tends
to increase if the previous year the parent banks have reported negative returns on assets. Our
empirical findings are intuitive and confirm previous studies, which conclude that a parent bank’s
reasons for closing foreign subsidiaries and withdrawing from international markets are driven by
problems in the country of origin.
5.3 Robustness tests
To ensure confidence in our main findings, we ran three sets of robustness checks. The first set
keeps the exogenous variables and data samples the same as in the main runs, but uses econometric
methods that are distinct from the maximum likelihood estimation techniques. The second set uses the
main econometric specifications and data samples but alters the specifications of the exogenous
variables. The third set uses the main econometric specification and exogenous variables but alters the
data samples. The robustness results are summarized here, but are not shown in the tables for brevity.
As alternative econometric specifications, we tried the ordinary least squares, or OLS, approach -
in which the dummy withdrawal variable was the dependent variable. The results did not change
significantly, confirming the poor performance of the parent bank as the cause of foreign subsidiary
closures.
17
Turning next to our robustness checks that used alternative specifications of the exogenous
variables, we tried the following variations: net loans to customer and short term funding, liquid assets
to total deposits and borrowing, loan loss reserves to gross loans, securities to total assets, net interest
margin, non-interest expenditure to total assets, overhead expenses to total assets and net interest
revenues to average assets. Again, our results chiefly suggest that the main motivation for divestment
of subsidiaries is most likely to do with problems encountered in the home country.
We finally turn to our robustness checks that altered the data samples. First, we included
subsidiaries from each region separately. The results of this data modification are even stronger than
our main results. When we include only subsidiaries from Latin American countries, we find that the
coefficients of the final specification for the parent bank are statistically significant at the one percent
level. The coefficients are also of the same order of magnitude as those in the main results for all the
specifications. We further restricted the data sample to the years 1999–2002. All coefficients remained
unchanged and significant in almost all instances.
In conclusion, the results of the robustness tests confirm the statistically significant relationship
between the closing of a foreign bank subsidiary and the probability of financial distress of the parent
bank in its home country. The alternative econometric methods, alternative exogenous variable
specifications, and alternative data samples all support our core results.
6. Conclusions
Over the last few decades, research on multinational banking has concentrated on the reasons why
foreign banks decide to enter international markets. Only a few studies to date have examined the
reasons why foreign banks may withdraw from a country. However, most of these studies focus on the
presence of foreign banks during times of crisis. Furthermore, none of them presents empirical
evidence regarding the motivation and reasons behind foreign banks’ withdrawal from a host country.
In this paper, we present for the first time an insight into the reasons why a bank may choose to
close its foreign subsidiaries, using an original sample of 81 closed foreign subsidiaries in 37 countries
during the years 1999 – 2006. We explored two possible explanations for withdrawal of a parent bank
from international operations. The first suggested that a parent bank’s decision to close a foreign
subsidiary was caused by financial problems related to operations in the host country. The second was
that the problems suffered the parent bank at home may lead to the decision to close a foreign
subsidiary.
Our empirical analysis suggests a clear increase in the probability of closing a subsidiary abroad if
the parent bank reported a decrease in profitability one year prior to the closure event. The profitability
of the parent bank significantly increases in the year of closure. At the same time, we failed to find any
evidence of financial distress being a reality for foreign-owned subsidiaries in this period. Therefore,
we assume that the closure of subsidiaries is caused primarily by problems with the parent bank,
consistent with the data from previous studies. Our results are strengthened by the fact that we failed
18
to identify any statistical differences between the performance of the foreign subsidiary and that of the
domestic banks or other still-operating foreign subsidiaries of the parent bank prior to its divestment.
In conclusion, our results show that the presence of foreign banks can change over time. However,
changes in ownership will mainly be prompted by the situation in the home countries of the parent
banks. On the positive side, our results confirm that foreign bank subsidiaries are generally financially
stable and their closure is rarely caused by financial distress. On the other hand, our results also
suggest that regulators in the host country should place more emphasis in the future on controlling the
parent bank and its standing in its home country. This is because parent banks may reallocate capital to
their home country and disclaim obligations to their subsidiaries abroad in the future. Our study
suggests that a worldwide supervision model is needed for multinational banks. This body would be
responsible for the supervision of bank holding companies on a consolidation basis, as subsidiaries
affect the parent’s solvency. We believe that the parent should not be able to relinquish all
responsibility for its subsidiary.
Finally, in the context of the current financial crisis, our results show that the problems of parent
banks in industrial countries may lead to a change in the structure of the banking sector in developing
countries. It remains unclear whether the weakening position of foreign banks from industrial
countries will be taken advantage of by domestic banks from developing countries or will instead be
seized by new entrants from other developed economies.
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Table 1 Number of foreign banks subsidiary closures, by host country
Countries 1999 2000 2001 2002 2003 2004 2005 2006 Total
Hong Kong 1 1 Italy 1 1 1 1 4 Japan 2 1 3 Korea 2 1 3 Lebanon 1 1 Mexico 1 1
Netherlands 1 1 1 3 Norway 1 1 Russia 1 1 Spain 2 2 4 Turkey 1 3 4 UK 1 1 2 4 USA 1 1 1 3 Total 3 3 10 10 9 9 4 9 57
Source: Bankscope
Table 3 Definitions of variables used to explain the closure of subsidiaries
Variable Definition Category Assets Log Total Assets Size AGrowth Annual change of total assets Asset Growth Equity Equity to total assets ratio Capital strength Loans Net loans to total assets ratio Loan activity Liquidity Liquid assets to customer and short term funding Liquidity
23
ratio LQuality Loan loss provision to net interest revenue ratio Loan Quality ROAA Return on average assets Profitability Costs Cost to income ratio Efficiency in expenses
Table 4 Summary statistics describing characteristics of the closed foreign bank subsidiary and control sample one year prior and during the year of closure Subsidiary Matched Random
Mean Std.Dev. Mean Std.Dev. t-Stat. Mean Std.Dev. t-Stat.
*, **, *** indicate a significant difference between closed foreign bank subsidiary and domestic banks’ mean values at 10%, 5% and 1% levels, respectively.
Table 5 Summary statistics for the parent bank and the two control samples that comprise domestic banks in the year of closure of a foreign subsidiary and one year prior Subsidiary Matched Random
Mean Std.Dev. Mean Std.Dev. t-Stat. Mean Std.Dev. t-Stat.
*, **, *** indicate a significant difference between parent bank and domestic banks’ mean values at 10%, 5% and 1% levels, respectively.
Table 6 Estimations of the likelihood that a foreign bank subsidiary will be closed, using as a control sample both (a) asset matched and (b) randomly chosen domestic banks from the host country
Matched Random Logit Probit dF/dx Logit Probit Elasticity
Size 44.348***
(2.68) 26.400***
(3.38) 5.707
7.425 (1.49)
4.437*
(1.71) 0.962
AGrowth -37.985***
(-2.73) -22.669***
(-3.23) -4.901
-5.164 (-1.25)
-3.058 (-1.44)
-0.664
Equity 1.617*** (2.73)
0.950*** (3.76)
0.205 0.328***
(2.59) 0.189***
(3.06) 0.042
Loans -0.372** (-2.48)
-0.227*** (-2.97)
-0.049 -0.066 (-1.45)
-0.039 (-1.64)
-0.009
Liquidity -0.014 (-0.22)
-0.010 (-0.31)
-0.002 -0.016 (-0.84)
-0.010 (-0.94)
-0.002
LQuality 0.167*** (2.84)
0.101*** (2.92)
0.022 -0.004 (-0.59)
-0.003 (-0.85)
-0.001
ROA 0.232 (0.52)
0.156 (0.73)
0.034 -0.134 (-0.55)
-0.087 (-0.82)
-0.019
Costs 0.010** (2.05)
0.061** (2.20)
0.013 0.003 (0.38)
0.001 (0.34)
0.000
Sizet-1 -42.933***
(-2.60) -25.539***
(-3.32) -5.521
-7.471 (-1.48)
-4.465* (-1.71)
-0.969
AGrowth t-1 6.541** (2.47)
3.874*** (2.69)
0.838 0.742 (1.22)
0.423 (1.18)
0.092
Equity t-1 -1.268** (-2.43)
-0.742*** (-3.52)
-0.160 -.244***
(-2.09) -0.143** (-2.48)
-0.031
Loans t-1 0.195* (1.83)
0.120*** (2.65)
0.026 0.048 (1.04)
0.029 (1.19)
0.006
Liquidity t-1 -0.079 (-1.28)
-0.045* (-1.68)
-0.010 -0.015 (-0.67)
-0.007 (-0.55)
-0.002
LQuality t-1 -0.095** (-2.50)
-0.057*** (-2.63)
-0.012 -0.009 (-0.92)
-0.005 (-1.09)
-0.001
ROA t-1 0.693 (1.46)
0.401** (2.22)
0.087 0.074 (0.38)
0.049 (0.49)
0.011
Costs t-1 0.127** (2.09)
0.074*** (3.08)
0.016 0.003 (0.25)
0.002 (0.36)
0.000
Obs. 52 52 92 92 Pseudo R2 0.540 0.544 0.408 0.246 Wald test χ2 23.69 27.73 16.66 19.44 Prob. 0.096 0.034 0.232 0.246 Log pseudolikelihood -16.41 -16.30 -37.94 -37.86 A constant is estimated but not reported. Robust standard errors are in parentheses. *, **, *** denote significance at 10%, 5% and 1%, respectively.
25
Table 7 Estimations of the likelihood that a parent bank will close a specified subsidiary, using as a control sample both (a) asset matched and (b) randomly chosen subsidiaries in other host countries of the parent bank
Matched Random Logit Probit dF/dx Logit Probit dF/dx
Size 7.413 (0.62)
4.733 (0.71)
1.844 2.939 (0.77)
1.504 (0.87)
0.415
AGrowth -8.181 (-0.73)
-5.161 (-0.86)
-2.011 -2.284 (-1.25)
-1.243 (-1.43)
-0.343
Equity 0.169 (1.55)
0.106* (1.72)
0.041 0.054 (0.57)
0.027 (0.62)
0.007
Loans -0.075 (-1.32)
-0.045 (-1.42)
-0.018 -0.125*** (-2.64)
-0.071*** (-2.62)
-0.020
Liquidity -0.031 (-0.80)
-0.019 (-0.98)
-0.008 -0.058** (-2.31)
-0.032** (-2.29)
-0.009
LQuality 0.015 (0.90)
0.010 (0.99)
0.004 0.012 (0.91)
0.007 (1.03)
0.002
ROA -0.069 (-0.32)
-0.040 (-0.33)
-0.016 0.129 (0.77)
0.085 (1.06)
0.024
Costs -0.009 (-0.49)
-0.005 (-0.50)
-0.002 0.011 (0.86)
0.006 (0.95)
0.002
Sizet-1 -7.629 (-0.64)
-4.870 (-0.73)
-1.897 -3.454 (-0.87)
-1.781 (-1.01)
-0.491
AGrowth t-1 0.780 (0.73)
0.496 (0.80)
0.193 1.366 (1.07)
0.747 (1.20)
0.206
Equity t-1 -0.161 (-1.12)
-0.099 (-1.23)
-0.039 -0.086 (-0.76)
-0.045 (-0.88)
-0.012
Loans t-1 0.018 (0.27)
0.011 (0.28)
0.004 0.112** (2.57)
0.064** (2.54)
0.017
Liquidity t-1 -0.019 (-0.43)
-0.012 (-0.48)
-0.008 0.040* (1.89)
0.022* (1.81)
0.005
LQuality t-1 0.005 (0.47)
0.004 (0.50)
0.001 -0.007 (-0.82)
-0.004 (-0.87)
-0.001
ROA t-1 0.155 (0.70)
0.096 (0.74)
0.038 -0.249 (-1.41)
-0.156* (-1.80)
-0.043
Costs t-1 0.016 (0.83)
0.010 (0.80)
0.004 -0.017 (-1.04)
-0.010 (-1.18)
-0.002
Obs. 36 36 76 76 Pseudo R2 0.223 0.227 0.177 0.174 Wald test χ2 13.63 15.67 13.91 16.84 Prob. 0.626 0.476 0.605 0.400 Log pseudolikelihood -18.583 -18.475 -34.011 -34.159 A constant is estimated but not reported. Robust standard errors are in parentheses. *, **, *** denote significance at 10%, 5% and 1%, respectively.
26
Table 8 Estimations of the likelihood that a parent bank will close its international operations, using as a control sample both (a) asset matched and (b) randomly chosen banks from the home country
Matched Random Logit Probit dF/dx Logit Probit Elasticity
Size 4.055 (0.37)
3.036 (0.50)
1.203 6.040 (0.94)
3.598 (0.92)
1.226
AGrowth -2.863 (-0.36)
-2.149 (-0.48)
-0.852 -5.152 (-0.95)
-3.057 (-0.95)
-1.042
Equity 0.079 (0.27)
0.066 (0.40)
0.026 0.240 (1.27)
0.142 (1.29)
.048
Loans 0.117 (1.39)
0.066 (1.49)
0.026 0.032 (0.77)
0.021 (0.81)
.007
Liquidity -0.008 (-0.24)
-0.005 (-0.24)
-0.001 0.027 (0.89)
0.015 (0.90)
.005
LQuality -0.034 (-1.35)
-0.0198 (-1.58)
-0.008 0.005 (0.40)
0.002 (0.39)
.001
ROA 0.653 (1.31)
0.400 (1.48)
0.159 .409
(1.24) 0.244 (1.27)
.083
Costs 0.008 (0.12)
0.005 (0.15)
0.002 0.043 (1.29)
0.026 (1.32)
.009
Sizet-1 -3.650 (-0.33)
-2.787 (-0.46)
-1.105 -5.442 (-0.84)
-3.23 (-0.83)
-1.103
AGrowth t-1 -4.044*** (-1.96)
-2.450*** (-2.22)
-0.971 -1.357 (-1.29)
-0.831 (-1.36)
-.283
Equity t-1 0.498 (1.62)
0.287* (1.76)
0.114 0.047 (0.29)
0.028 (0.29)
.009
Loans t-1 -0.069 (-0.87)
-.0374 (-0.88)
-0.015 0.001 (0.02)
-0.001 (-0.05)
-.000
Liquidity t-1 0.021 (0.67)
0.0121 (0.67)
0.005 -0.001 (-0.04)
-0.000 (-0.02)
-.000
LQuality t-1 0.030 (1.36)
0.0173 (1.53)
0.007 -0.005 (-0.56)
-0.003 (-0.62)
-.001
ROA t-1 -1.523* (-1.83)
-0.925** (-2.08)
-0.367 -0.552 (-1.61)
-0.330* (-1.65)
-.113
Costs t-1 0.082 (1.41)
0.049 (1.57)
0.020 -0.000 (-0.03)
-0.001 (-0.08)
-.001
Obs. 78 78 108 108 Pseudo R2 0.280 0.283 0.211 0.215 Wald test χ2 25.86 32.54 24.34 29.67 Prob. 0.056 0.009 0.082 0.019 Log pseudolikelihood -38.337 -38.164 -55.724 -55.484 A constant is estimated but not reported. Robust standard errors are in parentheses. *, **, *** denote significance at 10%, 5% and 1%, respectively.
