Foreign bank expansion and the follow-the-customer hypothesis

• Except for the corporate customers, banks also follow the non-corporate customers.
• An asymmetric effect is found on banks’ following the customers strategy.
• Banks from developing countries follow the corporate and non-corporate customers.
• Banks from developed countries follow only the non-corporate customers.
• The characteristic of customers matters on bank foreign expansions.

The “follow-the-customer” hypothesis is used in this paper to examine banks’ overseas expansion. Unlike previous studies that focus on corporate customers, this study proposes that banks may follow both the corporate and non-corporate customers. Data about non-corporate customers covers labors from 33 home countries to 20 host countries. This type of cross-country study using non-corporate customers as additional proxy for customers has not been undertaken. Furthermore, this paper posits that there is an asymmetric effect for the hypothesis. Banks do not follow the customers when their home countries are the developed ones, but do so when they are from the developing countries. Empirical results show that the “follow-the-customer” hypothesis holds for both types of customers when the income of home countries is not distinguished. However, banks do not follow the corporate customers if they come from developed countries, but follow the non-corporate customers regardless of the development of home countries.