Using a rich dataset on the presence of Italian banks abroad, our paper examines which bank and market characteristics can affect banking internationalization, so as to identify changes in the driving forces of bank expansion in foreign markets. In our analysis a particular attention is devoted to investigate whether organizational choices and geography of international banking are correlated with both bilateral trade and outward financial direct investments, in order to verify the relevance of the “follow the customer” hypothesis. We are also able to examine the effect of the “persistence” in the bank’s behaviour, due to the high incidence of sunk costs in international activities. The main empirical evidence shows that the closeness to the client positively influences the probability of remaining in foreign markets, especially when banks operate abroad through representative offices and branches. Furthermore, geography and organizational forms of the expansion seem to be strongly conditioned by sunk costs, that are severe barriers to leave foreign markets in the short term, even if not always profitable or less suitable to support customers abroad. Therefore, sunk costs of international expansion, mainly for the more complex organizational forms such as subsidiaries, could explain the low correlation between banking internationalization and relocation of firms.
Keywords: International banking, following customer strategy, sunk costs, organizational structure, host market features.