Insill Yi’s research while affiliated with University of Nevada, Reno and other places

We use annual banking panel data from 2001 to 2006 to examine the effects of foreign ownership on Korean domestic banks' performance in four areas of loan market behavior, management efficiency, transmission of advanced financial techniques, and profitability. Several conclusions emerge. First, increases in foreign bank ownership do not directly increase loans to large-sized firms. Also, no significant evidence suggests that increased foreign ownership of domestic banks reduces loans to small- and medium-sized firms. Consumer loans significantly increase with the level of foreign ownership. Second, the increase in foreign ownership does not produce statistically significant cost saving, such as more layoffs and shutdowns of branches. Third, we do not find any statistically significant relationship between non-interest income and foreign ownership. We do find that higher foreign holding associates with higher foreign-related activities and lower derivative-related activities, suggesting that foreign investors prefer a more stable and safer bank management, particularly with foreign exchange control, rather than more aggressive management practices, such as derivatives. Finally, we do not discover a statistically significant relationship between foreign ownership and profitability as measured by return on assets (ROA). A statistically significant negative relationship does exist, however, between foreign ownership and return on equity (ROE).

The aggregate performance of the banking industry depends on the underlying micro-level dynamics within that industry - adjustments within banks, reallocations between banks, entries of new banks, and exits of existing banks. This paper develops a generalized Bennet (1920) dynamic decomposition and applies it to the return on equity of foreign and domestic commercial banks in Korea from 1994 to 2005. The sample corresponds to the before, during, and after the Asian financial crisis, which encompasses the final stages of a long process of deregulation and privatization in the Korean banking industry. Our findings reveal that foreign banks experienced a "global advantage" before and during the Asian crisis, but Korean domestic banks enjoyed a "home-field advantage" after the crisis. Moreover, the overall performance of Korean domestic banks largely reflected individual bank efficiencies, except during the Asian financial crisis when restructuring played a more important role on the average bank's performance.