Author(s):
Asli Demirguc-Kunt, Balint L. Horvath, Harry Huizinga
Date:
April 2023
Abstract:
This paper examines the impact of international differences in capital regulation on multinational
banks’ loan origination location decisions. International loan location decisions represent a key
banking margin that has previously not been examined in the literature on regulatory arbitrage by
banks. Our estimation relies on within-loan contribution variation in location options for individual
multinational banks that participate in a syndicated loan. We examine how the loan location choice
and the intensity of regulatory arbitrage are affected by borrower transparency. We find that greater
borrower transparency to a local bank establishment makes loan location at this establishment more
likely, and that regulatory arbitrage is more intense in the case of more transparent borrowers.