Reverse Efficiency Spillovers from Host Country Banks to Foreign Banks: Evidence from Emerging Market Bank Subsidiaries in Developed Markets

Extant research on Foreign Direct Investment (FDI) spillovers mainly focuses on how local firms benefit from foreign firms. Our study examines the reverse spillovers in multinational banks. More specifically, we study how emerging-market multinational banks (EMMNBs) can receive reverse efficiency spillovers from local banks when investing in developed markets. We hypothesize that, when operating in developed markets, EMMNB subsidiaries receive positive spillovers from local banks by means of absorbing advanced technological knowledge and managerial expertise. By contrast, EMMNB subsidiaries receive negative spillovers from other EMMNB subsidiaries from the same home country because they compete for similar markets and resources. Empirical analyses, based on a worldwide panel dataset of emerging-market bank subsidiaries in developed markets from 2000 to 2014, support our hypotheses. Our findings enrich the FDI spillover literature as we examine how EMMNBs learn from local banks in developed countries, and extend the learning theory by incorporating the multinational banks context.