1. ¹Department of Business Administration, University of Illinois at Urbana-Champaign, Champaign, IL, USA
2. ²Department of Business Policy, National University of Singapore, Singapore

Correspondence: Lihong Qian, Department of Business Administration, University of Illinois at Urbana-Champaign, 350 Wohlers Hall, 1206 S. 6th St, Champaign, IL 61820, USA. Tel: +1 812 391 0206; Fax: +1 217 344 2810; E-mail: lqian3@uiuc.edu

Received 21 June 2004; Revised 13 December 2006; Accepted 14 March 2007; Published online 20 September 2007.

Abstract

We use an interdisciplinary approach to investigate multinational banks' foreign activities. We bridge core concepts from the stages theory of internationalization to internalization theory, to extend the literature on the defensive expansion hypothesis. Unlike the primarily aggregate levels of analysis employed in previous research on multinational banking, we utilize a firm-level analysis of the internationalization experiences of 21 Japanese banks in the period 1980–1998. We find that banks undertake foreign direct investment to secure internalization benefits by following their existing clients, and to achieve economies of scale in the application of their intangible assets in international markets. The magnitude of these relationships, however, is contingent upon the level of a bank's experience in the host countries. Consistent with predictions from internationalization theory, we find that the motivations for international expansion can change over time.