| This study examines the effects of bank multinational operations on insolvency risk, and the announcement effects of bank multinationalism on shareholder wealth. The theoretical framework is established on the basic premise that international economic cycles are not perfectly in phase. As distinct from previous studies focusing exclusively on systematic risk, and using pre-1982 data, this study concentrates on bank insolvency risk using 1987-1991 data.; CD risk premium, insolvency risk measures and the standard deviation of the return on assets are used as measures of risk. The valuation effects of bank multinationalism are estimated by examining announcements of the establishment of foreign branches and subsidiaries.; The empirical results show that the insolvency risk measures are not significantly correlated with the non-LDC foreign loan ratios, or with the number of foreign branches and subsidiaries. This particular finding supports the view that multinational operations do not necessarily reduce bank risk. However, the results show that the CD risk premium has a significant negative relationship with the number of foreign branches and subsidiaries. The inconsistent results between CD risk premium and ex post risk measures suggest differences between market expectations and ex post results of bank multinational operations. While lower levels of return on assets are observed with greater LDC loan ratios, they are not significantly related to the non-LDC foreign loan ratios, and to the number of foreign branches and subsidiaries.; The announcement effects of bank multinationalism are generally significantly positive. That is, shareholders experience positive abnormal returns surrounding the time of the announcement of establishment of foreign branches and subsidiaries. The results suggest that the diversification and synergistic benefits associated with the establishment of foreign branches and subsidiaries outweigh the risks and costs associated with them. The abnormal returns from foreign branching are greater than those from domestic branching, and those associated with foreign acquisitions. |
