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How organizational and geographic complexity influence performance: Evidence from European banks

Author

Listed:
  • Annick Pamen Nyola
  • Alain Sauviat

    (UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Amine Tarazi

    (UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges, IUF - Institut universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche)

  • Gamze Ozturk Danisman

Abstract

We empirically investigate how bank internationalization, organizational complexity, and geographical complexity stemming from foreign-affiliate type and geographic dispersion affect parent bank stability and profitability. We base our analysis on unique, hand-collected data for the worldwide locations of subsidiaries and branches of EU banks. Our results show that internationalization benefits bank stability by reducing default risk, and it is significantly associated with lower earnings volatility but poorer profitability. With regard to foreign organizational complexity, banks with both foreign subsidiaries and foreign branches are more stable than banks with foreign branches exclusively, which are more stable than banks with only foreign subsidiaries. Nevertheless, higher geographic complexity is associated with lower default risk, higher volatility in earnings, and higher profitability. Further investigations on the sovereign debt crisis and bank size indicate that the sovereign debt crisis in 2011 amplified the relationship and our findings mainly hold for small banks.

Suggested Citation

  • Annick Pamen Nyola & Alain Sauviat & Amine Tarazi & Gamze Ozturk Danisman, 2021. "How organizational and geographic complexity influence performance: Evidence from European banks," Post-Print hal-04881077, HAL.
  • Handle: RePEc:hal:journl:hal-04881077
    DOI: 10.1016/j.jfs.2021.100894
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    Cited by:

    1. Anani, Makafui, 2024. "Geographic complexity and bank risk: Evidence from cross-border banks in Africa," Economic Systems, Elsevier, vol. 48(3).

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