Market characteristics and entry modes of foreign banks

We identify the difference in market characteristics between different regions as an important determinant of the entry mode choices of foreign banks. The greater the difference in borrower quality between the developed and underdeveloped regions is, the more likely that the foreign bank to pursue Greenfield investment in the developed region. However, if the relative market size or the amount of borrowers in the underdeveloped region is large enough, the foreign bank tends to take stakes in a domestic bank operating in the underdeveloped region. Our findings provide valuable insights for explain observed organizational forms of foreign banks in China.

► We model the effects of market characteristics on foreign banks' entry decision. ► We provide valuable explanation for the stylized facts of foreign banks in China. ► Greenfield entry is preferred if the difference in borrower quality is great. ► Stake taking is preferred if the difference in market size is large.