THE FOREIGN BANK EFFECT ON VALUE CREATION IN COMMERCIAL BANKS INCORPORATED IN THAILAND

Using quarterly bank-level data over the period 1997-2005, this paper examines the effect of foreign bank presence on commercial banks incorporated in Thailand, using traditional and value-based performance measures as indicators of the degree of competition and proxies for the efficiency in the provision of banking services. The findings suggest that foreign bank presence is not only beneficial in terms of traditional performance measures, but also in terms of economic profit. The results with respect to economic value added and cash value added, however, cast some doubt over the presumed benefits of opening up, underlining the importance of using a proxy that considers the cost of equity and departs from standard accounting principles. Furthermore, the results indicate that foreign entry through the acquisition of domestic banks appears to have a stronger and more beneficial impact on locally incorporated banks than through the establishment of branches, with majority ownership by a foreign blockholder being of importance.