The defensive expansion approach to multinational banking: Evidence to date

This paper integrates the defensive expansion hypothesis in multinational banking with the internalisation approach to the multinational enterprise. This framework is then used to structure a review of the literature to date regarding the proposition that multinational banks follow their clients abroad, otherwise called the defensive expansion hypothesis. Both theoretical and empirical issues relevant to the study of the defensive expansion hypothesis are canvassed. The paper concludes that the defensive expansion hypothesis is best modelled using firm level data, and that investment measures are a preferred proxy for following clients. Furthermore, studies considering the defensive expansion hypothesis should control for the effects of parent firm size and economic cycles. The paper concludes that defensive expansion increases multinational size, but has little impact upon multinational bank profits. There is some evidence that defensive expansion impacts upon the type of organisational form adopted by the multinational bank in the host nation.