Performance and Shareholder Wealth

Abstract

This chapter investigates the relationship between shareholder return as a performance measure of banks and the DOI. Through internationalization, a bank might aim to improve its profitability, or realize more stable profitability through geographical diversification. The goal of this chapter is to determine if international activities have delivered a better performance than home country activities, and what relationships exist between performance measures of banks and DOI. Also, internationalization strategies should improve shareholder return as a performance measure. We establish a theoretical link between internationalization and shareholder return. Discussing these models in more detail, we find that either profitability growth or the reduction of the risk premium through geographical diversification should improve shareholder return. We evaluate the following performance measures:

• foreign versus domestic profitability;

• the relationship between internationalization and total profitability;

• geographical diversification advantages;

• internationalization and shareholder performance.