The impact of the changing regulatory environment
in the wake of the financial crisis on the global
orientation and business unit scope of investment
banks as service firms
Master Thesis
MSc. Business Studies – International Management Supervisor: Dhr. Dr. J. P (Johan) Lindeque Second reader: Dhr. Drs. E. (Erik)Dirksen Student: Marie Louise Thijssen
Student ID: 10670734
Abstract
This research contributes to the current regionalization literature by examining the highly regulated industry of investment banking, which is an underexplored industry in this research area. By considering the interaction between the formal institutional environment investment banks operate in and the unique bundles of firm-specific advantages each bank possesses, an extra dimension is added to the regionalization theory when exploring the internationalization strategies and business sector activity of the MNEs. The main focus will be on the nature and the unequal distribution of the investment bank’s intangible FSAs across business units, resulting in asset specificity. This research investigatesthe responsesof four large investment banks to the changing formal regulatory institutions illustrated by thestrategic choices they make regarding changes in the degree of global/regional orientation and business unit scope. A multiple-case studyusing longitudinal quantitative data, supplemented by qualitative data collected through Financial Times newspaper articles between 2007-2011 is used to compare the situations before and after the financial crisis of 2008. The findings of this research indicate that the tightened formal regulatory environment constrains investment banks in their internationalization process and have forced them to anticipate a drastic reform totheir geographical and business model strategies in order to stay profitable. Due to the non-location bound character of investment banks’ highly valuable intangible FSAs, banks attempt to minimize costs and liabilities imposed by formal institutions by moving in or out of certain markets and by selling or buying certain business units.
Keywords: regionalization, institutional environment, financial crisis, investment banks, geographic scope, business unit scope, firm-specific advantages, asset-specificity
Statement of Originality
This document is written by Marie Louise Elisabeth Thijssen who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgements
First and foremost, I sincerely thank my supervisor Dr Johan Lindeque for all the valuable support and expertise he has provided me with throughout this thesis process. I am very grateful for all the time and effort he has been willing to spend in assisting me with my research. His endless patience, trust and enthusiasm have been a motivating and inspiring force for me during the research and writing process.
Furthermore I thank my family and friends for their support and listening during my studies and especially during the final phase of conducting my thesis.
Table of contents
1. Introduction………p.6 2. Literature Review...………p.10
2.1 General overview of the regionalization theory………...p.10 2.2 Drivers of regionalization ………p.13 2.2.1 Institutional-based view……….p.13 2.2.2 Resource-based view……….p.16 2.3 Conceptual framework………p.18 3. Methodology………..p.21
3.1 Ontology and epistemological foundations of study………...p.21 3.2 Qualitative multiple-case study design ………...p.21 3.2.1 Quality criteria for multiple case study designs………p.22 3.2.2 Case study selection and sample………...p.24 3.3 Data collection…..………p.27 3.4 Data analysis.………...p.28 4.Within-Case Analysis ...p.31
4.1 Case 1: North Americahome region..………....………..p.31 4.1.1 Morgan Stanley………...………...p.32 4.1.2 Goldman Sachs……….……….…….………...p.38 4.2 Case 2: European Union home region.…...….……….p.44 4.2.1 Deutsche Bank……….…..………p.44 4.2.2 Credit Suisse ………...………..p.49 5. Cross-Case Analysis and Discussion………...……..p.55 6. Conclusion ...p.62 6.1 Scientific relevance and managerial implications………p.63 6.2 Limitations and suggestions for future research……...………...p.64 7. References………..p.65
Index of Tables and Figures
Table 1: Classification of strategic orientation of MNEs Global Fortune 500………….….p.12 Table2: Institutional regionalization and asset specificity interaction………..…p.18 Table 3: Overview of selected cases………..…p.26 Table 4: Search terms, sources and number of newspaper articles per MNE………....p.28 Table 5: Coding scheme including description and the respective WPs………...…p.29 Table 6: Within-case analysis Morgan Stanley (2007-2011)……….p.33 Table 7:Business unit activity Morgan Stanley (2007-2011)………....p.36 Table 8: Within-case analysis Goldman Sachs(2007-2011)……….…p.39 Table 9: Business unit activity Goldman Sachs(2007-2011)………....p.42 Table 10: Within-case analysis Deutsche Bank(2007-2011)………p.45 Table 11: Business unit activity Deutsche Bank(2007-2011)………...p.47 Table 12: Within-case analysis Credit Suisse (2007-2011)………...p.50 Table 13: Business unit activity Credit Suisse(2007-2011)………..…p.53 Table 14: Cross-case analysis………...….p.56 Table 15: Results of the propositions……….……p.60
1. Introduction
In recent years the term globalization has been receiving an increasing amount of attention from scholars within the international business (IB) research community (Kogut, 1985; Levitt, 1983;Vahlne & Ivarsson, 2013). The present technological innovations and the growing economic integration give multinationals (MNEs) the opportunity to engage in value-adding foreign direct investment (FDI) on a global scale (Dunning, 1998). However, there are also scholars who question the extent to which MNEs truly geographically globally diversify (Rugman and Verbeke, 2004). In an on-going debate concerning the most optimal internationalization strategy for MNEs to implement in this current changing environment, arguments both in favour as well as against globalization and increasingly the notion of regionalization have been made (Dunning, Fujita & Yakova, 2006; Filippasios & Rama, 2008; Osegowitsch & Sammartino, 2008; Oh & Rugman, 2006; Rugman and Verbeke, 2007).
Some scholars argue that markets are becoming more and more globalized as a result of innovations in the technology sector that result in a converging commonality of consumer preference worldwide, the so-called homogenized consumers (Levitt, 1983). Most relevant for this specific research project is Garrett’s (2000) argument that financial service firms are the greatest beneficiaries of market integration caused by the technological revolution and other scholars’ agreement that implementing a global strategy should lead to superior MNE performance (Johansson & Yip, 1994; Yip & Hult, 2012).On the other hand the importance of combining local responsiveness and global integration in business strategy has been stressed (Barlett and Ghoshal, 1989) and more recently globalization and global strategies are argued to be a myth and regional strategies are recommended (Rugman, 2001). Ghemawat (2003) states that today’s “international integration of markets fall in between the two extremes, into a state of incomplete cross-border integration, referred to as ‘semi-globalization”(Ghemawat, 2003, p.139). In a prominent article the actual penetration level of markets across the globe by MNEs are researched and it is concluded that only a few MNEs are actually globalized, most are regional in terms of market coverage and sales (Rugman & Verbeke 2004).
Liability of foreignness (LoF), defined as “the costs of doing business abroad that results in the competitive disadvantage for a MNE subunit” (Zaheer, 1995 p. 342), is one of the key
concepts in the regionalization literature. Rugman and Verbeke (2007) argue that foreign firms experience less liability of foreignness when expanding within a home region than when they expand outside or between regions. In the international business literature regionalization of MNEs is explained on the basis of two fundamental views, the institutional-based view (IBV) and the resource-based view (RBV), each of these perspectives provides a unique interpretation of the sources of LoF.Institutional approaches state that both informal and formal institutional constraints, structuring the economic, political and social landscape, enforce liability of foreignness on MNEs (Zaheer, 1995; North, 1990). Resource-based approaches, on the other hand, focus on internal factors of MNEs and state that firm specific advantages (FSAs), created by firm’s resources and capabilities,are either location-bound (LB) or non-location bound (NLB), affecting the successful transaction of FSAs to host countries through foreign direct investment (FDI) and/orexports (Verbeke, 2013). Moreover, strategy is believed to be driven by firm specific differences (Peng et al, 2008).This research is based on the argument that the degree to which regulatory change equally affects the different business sectors of a firm and is coherent across regions will explain the changes in regionalization strategies of the major investment banks, which rely heavily on intangible FSAs to create value.
This study elaborates on the question of the extent to which changes in formal institutions have an impact on the internationalization and product mix strategies of MNEs, with the goal to gain a more clear understanding of their internationalization process. This specific study will focus on four major investment banks with a global image, exposed to specific financial governance conditions, and will investigate their actual global/regional orientation and business unit scope. The four focal banks includeMorgan Stanley, Goldman Sachs, Deutsche Bank andCredit Suisse.Banks play an important role and are of significant importance in the world economy due to the large influence they can have on operations of firms and the welfare of nations (Schröder et al., 2012). For this reason the implementation of stable governance mechanisms is vital in order to push banks to efficiently allocate capital and to take the interests of shareholders and debt holders into account (Liaw, 2011). The increasing degree of evolving, complex and extensive formal regulations,which the investment banks are facing in the 2008 financial post-crisis period, make research in this area interesting.
This research specifically focuses on the equaleffect formal institutional changes have on the different subunits in a financial service firm and the coherence in application of these
regulations across Rugman and Verbeke’s (2004) three extended triad regions of North America, Europe and Asia.Asset-specificity and the degree of universal applicability of the formal institutional changes influence the expected degree of inter and intra-regional LoF investment banks will face when engaging in FDI, effecting their internationaland business unit presence. The interaction between the intangible FSAs embedded in investment banks’ employees and theformal institutional environment before and after the financial crisis will be examined. Investment banks face a more intrusive and highly regulated environment after the financial crisis of 2007-2008. In order to capture the effect of the dynamic evolution of institutional environments, both pre-crisis and post-crisis periods are studied. This research provides significant contribution to the literatureby integrating the institutional perspective with the resource based view, clarifying the present relationship between intangible resources and the degree of inter and intra-regional LoF investment banks experience. Unlike most other studies, which focus only on the level of inter-regional LoF, this paper also takes the level of intra-regional LoF into account when analysing MNEs internationalization strategies.The phenomena described above led to the research question that this paper will focus on:
How do formal institutional changes in the financial sector influence the internationalization strategy and business unit scope of investment banks?
In advance of the actual research, cross-sectional data is collected for MNEs in the Global Fortune 500 in 2013; following the approach of Rugman & Verbeke (2004). For this multiple-case study, longitudinal qualitative as well as quantitative data is collected for the selected investment banks. Longitudinal quantitative data will be collected by means of annual reports of the MNEs, the qualitative data through newspaper articles within the time period of 2007-2011. These longitudinal data sets will make it possible to examine the changes over time and so to compare the situation before and after the financial crisis. The overall goal of this research is to gain more understanding regarding the interaction of formal institutions and internationalization strategies in relation to the focal banking sector. Specifically, this research wants to contribute to the regionalization debate by discovering the impact the financial crisis has had on MNE’s regional/global strategies in the banking sector with the assumption these findings may be relevant for future decisions and performances within the international business context.
The remaining part of this paper will start off by giving a broad overview of the existing global/regional internationalization literature for both the IBV and the RBV perspective. Additionally, the gap in the literature, the contribution of this paper and the research question will be formulated, followed by the development of working propositions. Next, the methodology chapter clarifies the research philosophy and the methodological foundation the research is built on, indicating its reliability and validity. Next, the case selection and design are discussed. The outcomes of the working propositions will further be elaborated on in the result and discussion chapters. In the concluding section of this paper relevant findings regarding managerial implementations are noted and recommendations for future research are provided.
2. Literature Review
Regionalization, as the core topic of this paper, will among others be introduced by the means of the pioneering paper on this topic by Rugman and Verbeke (2004). Additionally, relevant
findings of scholars who complement as well as who critique the statements of Rugman and Verbeke (2004) will be addressed. Explanations of the regionalization phenomenon are discussedbased on the industry-based view (IBV) and the resource-based view (RBV), including the key components in the regionalization literature. Finally, the conceptual framework will be provided, introducing several working propositions, which will guide the research design and later analysis.
2.1 General overview of the regionalization theory
In recent years the term globalization, described as ‘‘the international integration of markets in goods, services and capital’’ (Garrett, 2000 p. 400), has been receiving an increasing amount of attention from scholars within the international business (IB) research community (Kogut, 1985; Levitt, 1983; Yip, 1994; Vahlne & Ivarsson, 2013). The present technological innovations and the growing economic integration give multinationals (MNEs) the opportunity to engage in value-adding foreign direct investment (FDI) on a global scale (Dunning, 1998). In an on-going debate concerning the most optimal internationalization strategy for MNEs to implement in this current changing environment, arguments both in favour as well as against global and regional strategies are made (Dunning, Fujita & Yakova, 2006; Filippasios & Rama, 2008; Osegowitsch & Sammartino, 2008; Oh & Rugman, 2006; Rugman and Verbeke, 2007).
Firms are reacting to the current technological innovation, the growing international economic activity and the liberalization of foreign economic policy by expanding to foreign countries. Garrett (2000) explores the causes of globalization across the three major components of international market integration. Most relevant for this research is that Garrett (2000) argues that financial service firms are the greatest beneficiaries of market integration caused by the technological revolution. Global financial flows emerge while investment banks experience the least government policy and interference due to the rapid technological innovation which allows easy avoidance of government attempts to regulate the financial sector. Among others Levitt (1983) argues that, in this world of increasing internationalization, integration of international markets and growing competition, it is crucial for firms to adapt global strategies in order to be or to stay competitive. Moreover, consumers worldwide are becoming ‘homogenized’ and firms should react to this by developing advanced, functional and reliable standardized products at the right price on a global scale in order to achieve long-term success
(Levitt, 1983). Various other scholars agree that implementing a global strategy should lead to superior MNE performance (Johansson & Yip, 1994; Yip & Hult, 2012).
However, other scholars make contrasting arguments to these above. In their article, Prahalad and Doz (1999) introduce a matrix consisting of three strategic options for firms: the global integration strategy, the locally responsive strategy and the multi-focal strategy. Further elaborating on this distinction, Barlett and Ghoshal (1989) stress that, because MNEs are facing equal pressures of global integration and of local responsiveness, combining global integration and local responsiveness in business strategy is of large importance in order to achieve success. In the transnational strategy these two environmental pressures are believed to be complimentary instead of substitutes of each other (Rugman & Verbeke, 1992). Rugman (2001) later argues that globalization and global strategies are myths and recommends businesses to rather think local and act regional.
Ghemawat (2003) further elaborates on the debate by stating that today’s “international integration of markets fall in between the two extremes, into a state of incomplete cross-border integration, referred to as ‘semi-globalization’” (Ghemawat, 2003 p.139). Despite the increase in integration of certain market measures over the past decades, such as capital and labour markets, the desired perfect market integration is still far from realized. In the stage of semi-globalization, MNEs are recommended to focus on the differences between countries and so also on the location-specific international business strategies (Ghemawat, 2003).
In their pioneering paper Rugman and Verbeke (2004) further elaborate on the new paradigm of semi-globalization. Their theory is based on the multinational business perspective of globalization, which states that the firm itself is the driver of globalization. They view globalization from an economic perspective, measuring globalization based on the geographic distribution of sales. In their article Rugman and Verbeke (2004) demonstrate that, in contrast with the mainstream perspective of globalization, many of the world’s largest firms are not global but regionally based in terms of market coverage. In order to come to these findings the ‘TriadPower’ developed by Ohmae (1985), which represents a geographical space consisting of the United States, the EU and Japan, was used. Rugman and Verbeke (2004) used Ohmae’s triad as a foundation for their study and extended the regions to the NAFTA region, the European Union and Asia. In their research Rugman and Verbeke (2004) measure globalization on a firm level by looking at how a firm’s percentage of sales is distributed among an extended version of the three main regions in the world. The world’s 500 largest
multinationals have been classified into four different levels of globalization derived from their percentage of sales in each region (Rugman and Verbeke 2004, p.7). The data shows that most of the firms are not ‘global’ companies but limit the largest part of their sales distribution within their home country or triad region; North America, the EU or Asia.
Home-region Host-region Bi-region Global Conditions > 50% sales in
home region
>50% sales in other region of the triad region
>20% sales in two different parts triad region
<50% sales in the home region
>20% sales in each part of the triad region
<50% sales in one specific part of triad region
Number of firms Fortune 500 Fortune 500 Fortune 500 Fortune 500
% of MNEs 2004 64%* 2,2% 5,0% 1,8%
Table 1: Classification of strategic orientation of MNEs Global Fortune 500
Source: Adapted from Rugman and Verbeke (2004) and Global Fortune 500 (2007; 2011)
Note(s):*The remaining firms in the Fortune 500 have insufficient data to be classified, the significant difference between 2007 and 2013 is driven by assumptions of the researches when interpreting reported data.
Despite the many supporters, there are also various critiques on Rugman and Verbeke’s (2004) work. The critiques are mainly based on the conceptualization and the measurements of their research, and thus not on the regionalization phenomenon itself (Dunning et al., 2006; Osegowitsch & Sammartino, 2008). Moreover, the robustness of the findings and the exclusively economic perspective on globalization have been questioned. Dunning et al (2006) suggest that a firm’s globalization strategy can also be influenced by macro-level factors such as a country’s GDP and trade, or institutional based factors. In response to these remarks Rugman and Verbeke (2007) extended the literature by taking the macro-level factors introduced by Dunning et al (2006) into consideration, providing an counteract to the firm and country level conceptual shortcomings. The significant preference of MNEs to expand in their home region (Rugman and Verbeke, 2007) is based on the concept of liability of foreignness (LoF) introduced by Zaheer (1995).
Liability of foreignness, defined as “the costs of doing business abroad that results in the competitive disadvantage for a MNE subunit” (Zaheer, 1995 p. 342), is one of the key concepts in the regionalization literature. The costs that foreign firms face when operating abroad most commonly emerge due to their unfamiliarity with the host environment or due to
discrimination of host governments wanting to protect their economy (Sethi and Judge, 2009).Rugman and Verbeke (2007) argue that foreign firms experience less LoF when expanding within a home region than when they expand outside or between regions. In other words, intra-regional LoF is lower than inter-regional LoF (Rugman and Verbeke, 2007). It can be concluded that MNEs show preference towards expanding in their home region, due to the lower LoF they experience (Kolk et al, 2014). The relative degree of intra- and inter-regional LoF is a core understanding in this research, which can be explained by means of the institutional-based view (IBV) and the resource-based view (RBV).
2.2 Drivers of regionalization
Both IBV and RBVstreams are used to explain the degree of inter- and intra-regional LoF.Institutional approaches state that both informal and formal institutional constraints, structuring the economic, political and social landscape,createliability of foreignness on the part of MNEs (Zaheer, 1995; North, 1990). Resource-based approaches, on the other hand, focus on internal factors of MNEs and state that firm-specific differences impact the strategy and decision-making of firms (Peng et al, 2008).
2.2.1 Institutional-based view
Both Scott (2008) and North (1991) provide widely adopted definitions of institutions. Scott’s (2008) sociological approach towards institutions provides analyses of MNE subsidiaries. However, in this research, which focuses on MNE’s expansion into certain areas, North’s (1991)transaction cost related definition is more relevant to use. From an economic perspective, North (1991, p.97) describes institutions as ‘‘the humanly devised constraints that structure political, economic and social interaction’’. A distinction betweeninformal and formal institutions is made. The former represents traditions, codes of conduct and other cultural-related aspects, which are generally difficult to change, and the latter consistsof laws and regulations, whichare more influential to change.
Institutionswere historically implemented as a response to the emergence of impersonal exchanges and transaction that involve higher levels of uncertainty. Consequentially, due to the higher levels of uncertainty, a rise in transaction costs will be experienced. Institutions establish a stable structure to human interaction, which is needed in order to overcome these
uncertainties and generate economic growth (North, 2005). However, in the current ‘non-ergodic’ world of continuous change, constantly evolving institutions result in continual modification of choices for organizations accompanied by higher transaction costs of operating in complex markets with different cultural and social norms. In other words, the mix of informal and formal regulations results in increasingly uncertain outcomes (North, 2005).Thus, even though formal and informal institutions reduce the uncertainty in business environments they also hinder firms in their strategies by imposing transaction costs to firms that engage in foreign direct investment.
Even though the institutional environment is external to the firm, the process of creating new institutions is initiated through the experimental actions of individual firms. In other words, firms are actively involved in generating new ‘rules of the game’ due to the impact their response on uncertainty has on the wider environment (North, 1991).“Broadly speaking, institutions reduce uncertainty for different actors by conditioning the ruling norms of behaviors and defining the boundaries of what is legitimate. Actors, in turn, rationally pursue their interests and make choices within a given institutional framework’’ (Lee, Peng, & Barney, 2007).Moreover, the interaction between institutions and organizations affect the strategic choices firms make and thereby also influencing their performance (Peng et al., 2008). Even though firms preferably expand in countries with a strong formal institution, the decision to engage in FDI is based on the gains the firms receive from FDI and whether or not these gains are high enough to allow them to overcome the imposed transaction costs.
A frequently seen source of LoF emergeswhen host countries impose costs on MNEs through the institutional environment (Zaheer, 1995). Governmentsthenset up formal institutionsenforcing foreign firms that want to expand into their market with high transaction costs and by doing so creating entry barriers and deliberately discriminating these foreign firms in order to protect domestic industries (Peng et al, 2008). Regional trade agreements (RTAs) are seen as one of the reasons for the highly common regional nature of MNEs in international business (Banalieva et al, 2012; Hejazi, 2007). RTAs stimulate MNEs to expand their business within a home region (Enright et al, 2005), due to the lower level of uncertainty and costs they experience when doing business within a region than when engaging in inter-regional expansion (Banalieva et al, 2010). In other words, RTAs affect MNEs internationalization strategies, pushing them towards adopting a regional orientated strategy. Even though RTAs stimulate economic growth for countries within the region, benefits would
be even larger if trade barriers across the entire world would be removed. However, multilateral agreements are difficult to realize and therefor RTAs are a second best and more realistic alternative (Peng, 2013). Also various other incentives push MNEs, and specifically investment banks, towards a regional orientation. The investment banking industry is a highly regulated and competitive sector. The rise in client competition results in the need for investment banks to be responsive towards their clients. Local preferences, formed by culture, are more similar within a region resulting in lower information asymmetries, making it easier for banks to respond to their clients’ needs within a region (Deephouse, 1996).Another source of LoF, however less common than cost from host countries, are costs resulting from the home country environment. Home countries form restricted management practices and regulations to for example constrain local firms in transferring specific high-technological knowledge to certain countries of which the home governments is afraid it will hurt its own position (Zaheer, 1995). In other words, the intention of the home government is to keep knowledge inside the country and so to protect the local market. Moreover, firms’ core competence and technological development will be retained within the region. By means of reverse technological spillovers firms benefit from gaining knowledge within the home region (Zaheer, 1995).
In conclusion, there is a significant link between the institutional environment and LoF firms experience when engaging in FDI. Informal and formal constraints can impose foreign firms with LoF, affecting the area of internationalization (North, 1990; Zaheer, 1995). Generally, LoF results in lower profitability for foreign firms than local firms due to more restraints and higher costs they experience (Zaheer, 1995).Moreover, institutional change can affect the business units of a firm, which are differentiated by FSAs.This research is based on the argument that the degree to which regulatory change equally affects different business units within a firm andacross regions will explain the changes in business unit scope and regionalization strategies of investment banks, which are driven by intangible FSAs.
2.2.2 Resource-based view
According to Peng (2001), the emergence of the resource-based view (RBV), founded on the belief that strategy is driven by firm specific differences, has led to crucial developments in the international strategy and international business theory in general. MNEs are seen as
unique bundles of tangible and intangible resources and capabilities (Wernerfelt, 1984), which have the ability to influence the strategic decision-making of a MNE. In order for the firm to create a sustainable competitive advantage (SCA), their resources must be valuable, rare, inimitable and organized to exploit (Barney, 2001).
The firm specific advantages (FSAs), created by a MNE’s resources and capabilities, are either location-bound (LB) or non-location bound (NLB) andwill be transferred to host countries when internationalizing (Rugman and Verbeke, 1992; Verbeke, 2013). NLB FSAs adapt easily, benefiting from the lower transaction costs and potential advantages(Rugman and Verbeke, 2007). LB FSAs contrarily require more substantial investment to become deployable outside the home country, increasing transaction costs.In other words, the degree of transferability of the FSAs drives the degree of LoF a firm is exposed to, which largely differs between tangible and intangible FSAs.In order to offset costs concerning rising bounded rationality and the emergence of moreinternal networks, firms are recommended to recombine FSAs with host country specific advantages (CSAs) (Rugman and Verbeke, 2007). When firms align their FSAs with the location specific environment, these firms don’t only benefit from positive outcomes of strategy but also avoid the potential constraints the environment can impose (Verbeke, 2013). Moreover, the recombination of FSA with foreign conditions drives international strategy and will boost performance. Rugman and Verbeke (2005) advise MNEs to not only transfer their FSAs to locations which have large beneficial CSAs, but to also combine existing FSAs with the CSAs by taking location specific thinking into account when strategically choosing a country to expand to. The adaption cost of recombining FSAs with the CSAs is lower when expanding within the region, leading to more MNEs internationalizing in the home region (Rugman and Verbeke, 2005). Verbeke (2013) further elaborates on this argument, by extending the research outside the Global Fortune 500 firms and for multiple other sectors, in order to achieve a broader understanding of this issue.
Investment banks are service organizations, characterized by their intangible output, which deliver ‘experiences’ that cannot be clearly assessed before consumption (Carman and Langeard, 1980).Service firms do not hold inventory but provide services when and how clients request it. In other words, services are simultaneously supplied and consumed which makes personal contact between the producer and the consumer very important in these industries (Cowell, 1984). Recruiting people with knowledge or skills in a specific sector is of large importance in these companies due to the labor intensity of service delivery. Service
firms and their employees are not location bound, which makes it possible to access relevant skills and knowledge from all over the world via communication networks. Over the last past years there has been an increasing amount of attention and literature regarding intellectual capital, providing scientific information but also giving companies recommendations in order to improve management of intangible assets (Prusak, 1997; Davenport & Prusak, 1998; Nonaka&Takeuchi, 1995; Stapleton, 2003). Moreover, in the current knowledge-based economy, intangible resources significantly contribute to the value added of companies and their services (Andriessen, 2004).
Hall (1992) categorizes the intangible resources introduced in the model of capability differentials. Coyne (1986) introduces four sources of sustainable competitive advantages, as capability differentials. The ‘functional differential’ and the ‘cultural differential’ are based on competencies and skills. When knowledge, skills and experience of employees and others in the value chain are used to maintain or win market share it creates a relevant functional differential. The cultural differential consists of the collective habits, values, beliefs and attitudes of an organization as a whole and contributes to the competitive advantage when creating quality perception or managing change. The ‘positional differential’ and the ‘regulatory differentials’ are related to assets that the business owns. The positional differential is associated with previous endeavor that for example results in networks, databases and reputation creating a competitive but also defendable advantage due to the time it would take for competitors to create the same match. A company’s possession of legally protected assets such as intellectual property rights, contracts or trade secrets reflect the regulatory differential which is defended in their position by law. In this current research, the degree of the mobility and the firm centricity of the investment bank’s intangible FSAs are of large importancedue to the study’s focus on the MNE’s geographic and business unit scope, which is associated with the degree of LoF the firms are exposed to.
A key theme in the regionalization debate is asset specificity. Within a single MNE, various upstream and downstream FSAs are divided into different business units, which all have different potential to internationalize globally (Rugman and Verbeke, 2008a). In spite of the inseparability of production and sales in investment banks as service firms, most firms in the investment banking industry engage in different activities, which as well may lead to different potential in expanding into foreign markets (Rugman and Verbeke, 2008a). Activities and business units of investment banks can vary from Sales and Trading, Investment Banking,
Global Capital Markets, Investment Management, and Research, all with their separate levels of geographic dispersion. The focus of this research will be on the nature and the unequal distribution of the investment bank’s intangible FSAs across business units, resulting in asset specificity.
2.3 Conceptual framework
This research is based on the argument that in a service sector, like the investment banking sector which is highly dependent on intangible assets imbedded in its employees, the degree to which formal institutional changes equally affect different business units within a firm and across regions will determine their geographicaland business unit presence. Moreover, this research focuses on the interaction between the intangible FSA specificity of investment banksand theregional context of the institutional environment they operate in, before and after the financial crisis. The possible change in the relevance of institutions to investment banks over time, and its influence on the degree of inter-regional and intra-regional LoF, will be investigated.
INTER-region: Regulatory coherence across regions INTRA-region:
Implementation of changed regulations
Same effect across the regions
Different effect across the regions
Same effect across different businesssectors
None / Little change in relative LoF
Inter-LoF change Different effect across different
businesssectors
Intra-LoF change Significant change in LoF
Table 2: Institutional regionalization and asset specificity interaction
The formal institutional changes that emerged in the wake of the financial crisis cause changes in the value creating potential for intangible assets of investment banks.As illustrated in table 2, under specific conditions of regulatory inter- and intra-regional implementationspecific outcomes concerning the regionalization and business activity strategies of investment banks will be expected. These foundational working propositions are based on the argument that intangible FSAs are unequally distributed over the business units of the financial service sectors, resulting in asset specificity for investment banks. Thus, the formal institutional changes affect business units, in different ways, as they are differentiated by their specific (in)tangible FSAs. Additionally, the regulatory changes can show coherence or divergence over the three regions, resulting in possible changes in the geographic scope of investment banks. The working propositions in this research are based on the way in which
national and regional formal institutional change affect the degree of intra and inter-regional LoF.
When regulatory change has the same affect within and across regions financial MNE strategic change is expected to be consistent across all financial service MNEs. Due to the consistency of the regulatory implementation and affects, the MNEs will experience the same level of constraints and benefits within and across regions, resulting in a stable and unchanged geographic and business unit scope. In other words, MNEs will not benefit from a change in geographic or business unit scope and therefor will not change their internationalization strategies. This assumption leads to the first working proposition stated below.
Working proposition 1: Regulatory change that affects all subsectors within and across regions similarly will result in consistent strategic response from all investment banks.
When regulatory change has the same affect within regions but has different affects across regions, the financial MNE strategic change is expected to be different across financial service MNEs. Due to the divergence between the regulatory changes in an investment-bank’s home region and a host region, it might be beneficiary for investment banks to adopt their internationalization strategy and by doing so changing their geographic scope. This assumption leads to the second working proposition stated below.
Working proposition 2: Regulatory change that affects all subsectors similarly within a region but differently across regions will result in different strategic response from investment banks, associated with a change in geographic scope.
When regulatory change has the same affect across regions, but has different affects for the different financial service subsectors within regions, the financial MNE strategic change is expected to be different across financial service MNEs. Due to the divergence of the implementation of regulatory change across business units it might be beneficiary for investment banks to adopt their business unit scope in order to take advantage of more favourable or avoid less unfavourable regulatory changes in specific business sectors. This assumption leads to the third working proposition stated below.
Working proposition 3: Regulatory change that affects subsectors differently within a region but similarly across regions will result in different strategic response from investment banks, associated with a change in business unit scope.
When regulatory change has different affects within as well as across regions, financial MNE strategic change is expected to be different across financial service MNEs. Due to the divergence of the regulatory implementation and affects, the MNEs will experience different levels of constraints and benefits within and across regions, resulting in anevolving and changing geographic and business unit scope. In other words, MNEs might benefit from a change in geographic or business unit scope and therefor will change their internationalization strategies. This assumption leads to the fourth and last working proposition stated below.
Working proposition 4:Regulatory change that affects all subsectors within as well as across regions differently will result in different strategic response from investment banks.
This paper provides significant contribution to the literature by integrating the institutional perspective with the resource-based view, clarifying the present relationship between intangible resources and the geographic presence of investment banks while being exposed to an evolving institutional environment. Investment banks face a more intrusive and highly regulated environment after the financial crisis of 2007-2009. In order to capture the effect of the dynamic evolution of institutional environments, both pre-crisis and post-crisis periods are studied. This study provides important implications for practitioners and managers. It is essential for them to understand that the change in institutional environments,implemented after the financial crisis, restrains investment banks in their geographic and business unit scope, affecting their internationalization strategies.
3. Methodology
This chapter explains how a multiple-case study research design (Eisenhardt, 1989; Yin, 1981, 1994, 2013) is argued to allow the research question for this study to be answered. The chapter proceeds as follows; first, the ontological and epistemological foundations of the research design are explained (Brannick and Coghan, 2007). Second, the multiple case study
design adopted is presented, including the quality criteria, the case selection and the sampling criteria. Next the focal cases are described and finally the data collection methods and the sources of data used are outlined, followed by a description of how the data is analysed.
3.1 Ontology and epistemological foundations of study
The ontological foundation of this research is objective; arguing that social and natural science investigate a reality that exists independently from human cognition (Brannick and Coghlan, 2007). The objective ontological perspective adopted in this research leads to the assumption that also the nature of knowledge is independent of the human mind (Brannick and Coghlan, 2007). The research question in this paper will be answered by means of the epistemological approach of post-positivism (Ryan, 2006), taking on a learning instead of testing role and using deductive procedures in order to generate an in depth understanding of a general phenomenon (Hyde 2000, p. 84). This post-positivism paradigm acknowledges that even though the knowledge is independent of the researcher, it is partial, only capturing parts of the full picture.
3.2 Qualitative multiple-case study design
The choice of which research design to adoptin a study is dependent on the nature of the research question and the aim of the research (Yin, 2003). This research adopts a qualitative multiple-case study design, due to the fact that the study addresses anexplanatory ‘how’/‘why’research question (Yin, 2013) and searches for an in-depth understanding of a“contemporary phenomenon, within its real-life context, in which the boundaries between the phenomenon and the context are not clearly evident” (Yin 1981, p. 58). The qualitative multiple case study adds insightful explanations to existing quantitative data (Yin, 2003), in whichvaluable context is often lost (Meyer, 2013). The deductive bottom-up theorizing approach (Shephard & Sutcliffe, 2011) is usedmeaning that in spite of the theory driven nature of the current research, associated with a predetermined set-up, the research is still open to new insightspermitting theory extension and data guidance.In this particular paper the qualitative multiple case study provides an in-depth research of a collection of major investment banks, with as goal to gaindeep and rich insights concerning their regional/global orientation and business unit scope and the role the regulatory environment playsin this internationalization processes.
Even though the use of multiple case study research benefits from in-depth explanations and rich insights, there have also been various disadvantages associated with the use of case study research. The small sample sizes restrain the generalization potential of expanding the results to larger populations and locations (Meyer, 2013), resulting in critique concerning lack of rigor (Yin, 1994). Additionally, a wide-ranging use of multiple case studies can lead to too much complexity,making it difficult to capture the most essential relationships between the outcomes. For these reasons, multiple case study designs have to comply with four criteria to assure the rigorousness or creditability of the research outcomes,which are determined by measuring validity and reliability (Yin, 1994). Validity, defined as “the extent to which data collection method or methods accurately measure what they were intended to measure” (Saunders et al., 2011, p. 603), can be divided into three types: construct, internal and external validity. Reliability is concerned withthe consistency of the data collection technique findings (Saunders et al., 2011), which is associated with transparency and replicability (Gibbert et al., 2008) needed in order to generate validity.
First of all, construct validity is involved with the way the concept of the research is measured (Yin, 2013) and to what extent the variables are aligned with what the research aims to measure. For this particular study, in which the regionalization of business activities is the core concept grounded on IBV and RBV foundational perspectives, construct validity audits the ability of the concept to explain regionalization and controls their measurement structure (Yin, 1994). In order to increase the construct validity, and so to meet this specific criterion,multiple sources of data are used, known as data triangulation (Hussein, 2009), and a clear and identical chain of evidence concerning data collection is implemented within and across the cases (Yin, 1994). These actions ensure that the right measurements are taken in order to grasp the research phenomenon.
The second type of validity is internal validity, which is related to explanatory and causal relationships between variables and the results of a study (Yin, 2013). If causal relationships cannot be identified, researchers may infer that a specific event is a consequence of a former outcome, based on theoretical propositions (Gibbert at al., 2008), known as pattern matching. In this study, pattern matching is used to identify the similarities in outcomes between MNEs with the same home country orientation. Also the implementation of both qualitative and quantitative data, known as triangulation, in this study helps to increase the internal validity,
by the acknowledgement this combination of data gives to the correctness of inference (Eisenhardt, 1989b). These provisions will help identify similarities and differences between cases (Yin, 2013), in this specific study between the selected investment banks, supporting the causal relationshipdiscussion regarding their international and business unit presence.
External validity, as third quality criterion, deals with the largest critique on multiple cases study approaches, which is, as mentioned before, the limited potential to generalize results of multiple case studies to a broader theory, population or other settings because of their small sample sizes (Saunders et al., 2011). This concerns the sample logic and the replication logic, which should be taken into account when selecting cases. By replicating multiple cases both within as well as cross case analysis the analytical generalizability of results will beincreasingly supported (Eisenhardt, 1989b). Additionally, adding inductive elements to the main deductive principles in the research will help extend theory and by doing so also boosting the analytical generalization potential and meeting the external validity criterion (Yin, 2013).
Reliability concerns supress the amount of biases and errors in a research as much as possible and are associated with high transparency and replication (Yin, 1994). Researchers who replicate a reliable study will therefor achieve consistent outcomes (Yin, 1994). As this study is part of collective regionalization research of different sectorial studies of the Fortune Global 500, reliability is highly relevant.In order to maximize the reliability of a study case study protocols, outlining detailed steps concerning the case description,and case study databases are implemented. Alsotriangulationcan boost the reliability of a study by using different sources of data collection methods, whichoutweigh the possible errors and biases of case studies (Yin, 1994) and confirms that the data is interpreted correctly (Saunders et al., 2011).
3.2.2 Case study selection and sample
This research further elaborates on the regionalization theory aiming on getting an insight on the internationalization strategies of global MNEs in the investment-banking sector and on the factors impacting their geographical and business unit presence. The goal of performing this analysis is to extend the literature of regionalization. Theoretical sampling techniques, described as “suitable for illuminating and extending relationships and logic among constructs” (Eisenhart and Graebner, 2007, p. 27), will therefore be used to select relevant
cases for studying regionalization strategies in the investment banking sector. Sector specificity is a key theme in the regionalization literature due to the unique global/regional strategy each sector pursues (Kolk et al., 2014). The following MNEs, selected from the Global Fortune 500, are analysed:Morgan Stanley,Goldman Sachs, Deutsche Bank and Credit Suisse. Data and a short description of the four investment banks are stated in table 3 below. The most important characteristics of the MNEs, making them interesting to study and so influencing the selection procedure, are their specific business units, as asset specificity is a key factor in the case selection process. Furthermore, the case selection includes MNEs from two of the three triad regions. Asian investment banks are deliberately excluded in this research due to US and European focus of the two largest regulatory reforms taken into account in this research, namely the Dodd Frank act and the Basel III propositions.
The Dodd Frank Act was implemented in July 2010 as reaction to the financial crisis and brought major changes to the financial regulation in the United States. The legislation made modifications in the American financial regulatory environment impacting all financial agencies and almost all the sectors of the American financial service industry. The Act changed the current regulatory structure and introduced stringent standards and supervisions aiming to boost the financial stability of the United States and to protect American consumers, shareholders and businesses (Anand, 2011). Overall the legislation improves the accountability and transparency of the American financial system. Also the Basel III Accord was introduced in response to the failing financial regulation which resulted in the financial crisis of 2007-08. In contrast to the Dodd Frank Act which targets the American economy, Basel III is a global regulatory settlement aiming to strengthen bank capital by implementing liquidity and leverage standards. Due to the variance in the degree of consistency in application of the regulatory change across regions, these institutional processes can result in shifts in regional/global presence.
The Volcker Rule, a provision of the Dodd Frank Act, prohibits investment banks from engaging in proprietary trading and restricts US banks from making speculative, high risk investment with their own money that don’t benefit clients (Whitehead, 2011). The Volcker Rule affects the intra-regional LoF MNEs experience, and so their business unit scope, by pushing investment banks to move their intangible resources out of high risk and capital intensive business units.The Basel III proposals, which introduce tougher and higher capital, leverage and liquidity standards constrains investment banks in bank lending, total assets acquisition, risk-taking activities and revenue generation, with the goal to improve bank’s
ability to deal with financial and economic stress(Cosimano & Hakura, 2011).The capital constraints and proprietary trading limits embedded in the two large institutional provisions don’t affect all business units equally. Especially high risk and volatile investment banking sectors are highly affected, causing possible shifts in business unit sectors.
Two case studies are identified at the regional level, each with two firm level embedded units of analysis.As discussed earlier, it is essential for a case study research to be valid and reliable (Gibbert et al, 2008). Via secondary data samples with the same regional orientation(Rugman and Verbeke, 2004) across the cases and the same home regions within cases are chosen in order to increase the external validity and replication potential of the research (Hyde, 2000; Yin, 2013). Additionally, the selection of the samples will also be based on the business sectors in which the MNEs are active reflecting the FSAs they possess.
26 Table 3: Overview of selected cases
Source: Data is derived from the corporate websites of the respective investment banks
Notes:*Only the percentage of geographical distribution per region is provided, not the percentage of sales per region. Case 1a:
Morgan Stanley
Case 1b:
Goldman Sachs Group
Case 2a: Deutsche Bank
Case 2b:
Credit Suisse Group Description Morgan Stanley is an American
financial service company which, through its subsidiaries and affiliates, provides investment banking, capital raising, financial advisory and corporate lending services to an assorted group of customers.
The Goldman Sachs Group is a prominent investment banking, securities and investment management MNE, which provides financial services to a broad client base. The firm’s headquarter is located in New York and possesses offices in many financial centers globally.
The German banking and financial services firm Deutsche Bank has its headquarter located in Frankfurt. The bank provides corporate, institutional, private as well as business clients with services such as sales, trading, mergers and acquisitions and risk management products.
Credit Suisse is a Suisse financial service MNE founded in 1856 and is headquartered in Zurich. The firm provides private and investment banking and advisor services.
Home country United States United States Germany Switzerland
Home region North-America North-America Europe Europe
Regional orientation Home-regional Bi-regional Home-regional* Bi-regional
Business sectors (asset specificity)
Institutional Securities, Global Wealth Management Group & Asset Management
Investment Banking, Trading & principal investment, Asset management & securities services
Asset and Wealth management, Global transaction, Corporate banking & securities
Private banking & Wealth management, Investment Banking
Total revenues 2013 (million) USD 32.417 USD 34.206 EU 31.915 = USD 33.858 CHF 25.217 = USD 25.109 Total assets 2013 (million) USD 832.702 USD 911.507 EU 1.611.400 = USD 1.709.534 CHF 872.806 = USD 868.959 Total employees 55.794 32.507 98.252 46.000
Rank in Global Fortune 500 2013
3.3 Data collection
For this multiple-case study, longitudinal qualitative as well as quantitative data collections are used for the selected investment banks in order to analyse their geographic pattern of business operations. By implementing both these two methodological strategies a more complete and generalizable foundation for further theory is provided (Yin, 2013). Additionally, the use of multiple methods refers to the process of triangulation, as it increases validity (Hussein, 2009; Yaesmin & Rahman, 2012), resulting in a more profound image of the regional orientation and business unit scope of the selected investment banks. Quantitative data, concerning revenue, employeeand asset details of MNEs, is collected via annual reports of the MNEs. This quantitative data shows the geographic distribution of revenues, translated into the regional/global orientation, of a particular MNE in the Global Fortune 500 of 2013 by following Rugman & Verbeke’s (2004) method. Additionally, merger and acquisition data of each MNE is derived from the Orbis database in order to identify the business sectoractivity of MNEs illustrated by the acquisitions and divestments of certain units. By further broadening the regionalization orientation analytical generalization of the diverse MNE regionalization strategies is possible (Yin, 2013). Additionally, qualitative data on strategies is collected through secondary sources, i.e. newspaper articles published in the Financial Times within the time period of 2007-2011, available via LexisNexis Academic database. The selected newspapers cover key developments concerning business activities and strategies and provide essential insights into the internationalization patterns of firms. The time frameof 2007-2011, including years before and after the financial crisis, has been set in order to capture the dynamic change over time. The use of longitudinal data provides the opportunity to make an in depth comparisonof the decision making processes before and after the financial crisis. In table 4 below all the sources are stated per company in an overview.
Case 1a: Morgan Stanley Case 1b: Goldman Sachs Group Case 2a: Deutsche Bank Case 2b: Credit Suisse Group Search term Morgan Stanley,
regulation, move Goldman Sachs, regulation Deutsche Bank, regulation, move, sector, market Credit Suisse, regulation, move, sector Total collected Financial Times articles 489 2280 192 200 Actual used Financial Times Articles 31 47 17 28 Total collected Annual Reports 5 5 5 5
Actual used Annual Reports
5 5 5 5
Table 4: Search terms, sources and number of newspaper articles per MNE
In the beginning of the data collection process only the MNE name was used as search term in order to avoid loss of valuable data. However, during the process of collecting data a pattern was identified in the most relevant articles and their corresponding key words. Therefor adjustment were made to the search terms in the course of the data collection process. In other words, more targeted search terms were added to the MNE name in order to generate a more focused number of relevant articles. These search terms also identify the layer of analysis of this research, taking formal institutions, FSAs and asset specificity into account.
3.4 Data analysis
The analysis executed for the different data used in this research will be discussed in detail in this section. The regionalization data and the merger and acquisition (M&A) data of the selected investment banks are quantitative in nature, while the qualitative data consists of motives explaining the MNE’sdecision concerning internationalization and business activity engagement.
The regional or global presence of an MNE is derived from longitudinal quantitative data in their annual reports. The relevant variablesused in this research are the distribution of the revenues, the number of employees and the assets of the MNEs in each of the 3 triad regions, describing their regional/global orientation (Rugman & Verbeke, 2004) and possibly also identifying shifts in this orientation. Likewise,the business unit scopes of the selected MNE’s are derived from the quantitative M&A data available in the annual reports and the Orbis database, reflecting the internal decisions made by MNEs regarding the business sectors they
are active in. The act of selling business sectors will be associated with exiting a certain business whereas the act of buying a certain unit will be associated with entering a new business.
Code category Code Description
Geographic scope North-American region All information with regard to expansion to/contraction from the North-American region
European Union region All information with regard to expansion to/contraction from the European Union region
Asia-Pacific region All information with regard to expansion to/contraction from the Asia-Pacific region
Liability of Foreignness (LoF)
Intra-regionalLoF All information with regard to LOF that the MNEs face in their expansions within the region.
Inter-regional LoF All information with regard to LOF that the MNEs face in their expansions to other regions. Business Unit Scope Acquire units/business sector All information with regard to the expansion of
the business unit scope
Sell units/business sector All information with regard to the contraction from a specific business unit.
FSAs Employee know-how and skills All information with regard to the skills and knowledge which are embedded in the MNE’s staff
Institutional pressures Dodd-Frank All information with regard to the tightened formal regulations
Basel III All information with regard to the tightened formal regulations
Table 5: Coding scheme including description and the respective WPs
The qualitative data derived from Financial Times newspaper articles, published between 2007-2011, are collected for each selected investment bank. Due to the large amount of articles it is necessary to scan the articles and to select the ones with relevant content regarding the research question. Nvivo, a research computer softwareprogram,is used to analyse the qualitative data and allows researchers to systematically link relevant information found in the articles to the predefined categories, simplifying the interpretations of outcomes (Payne, 2004). Thematic coding, a deductive approach towards coding whereby the working propositions are used to specify the codes (Miles and Huberman, 1984), is used which links phrases of themes in the data to theoretically formulated categories and thereby give meaning to the phrases (Ryan and Bernard, 2003). Inductive coding is also used in order to allow for unexpected insights and generates a full scale illustration of all the conceivable answers to the
research question (Yin, 2013) of this study; concerning the motivation and preference of MNEs to adopt a certain geographic and business unit scope. Additionally, pattern matching is implemented in order to identify patterns within and similarities and differences between cases with the same regional strategy (Yin, 2013), resulting in possible causal explanations. Coding supports a cross-case comparison, which is grounded on a matrix describing, and later explaining, the links between regionalization data and the amount of geographic and business unit motives in the form of phrases in newspaper articles. The outcomes are systematically and consistently noted. In table 5 stated above, the codes and their corresponding explanations are presented.
4. Within-Case Analysis
In this section qualitative data will be used to support the quantitative evidence regarding the global/regional orientation and business unit scope the four-selected investment banks pursue over a specific time period. The qualitative data provides motives for the execution of a specific degree of geographic and business unit scope, which identifies the firms’ international presence and strategy.
In the wake of the financial crisis a series of new regulations emerged and existing regulations become more stringent and intrusive. These formal institutional changessignificantly impact what investment banks do and how they operate those activities resulting in strategic responses. All the provisions of the recent financial regulations overhaul have had and are still having an effect on various aspects and sectors of the investment bank business. The evolving post-crisis formal institutional pressures havea significant impact on the financial performance of investment banks regarding their revenue generation potential but alsoimpact investment banks’ strategic activities and business models. Investment banks will be required to construct a recovery and resolution plan, which involves modifications in business activities and structures. The degree to which the formal institutional changes differ in theireffect on each business unit within an investment bank and across regions will determine the MNE strategic response illustrated by their geographical and business unit presence. The MNE specific effects are now discussed in turn for Morgan Stanley, Goldman Sachs,Deutsche Bank and Credit Suisse.
4.1 Case 1: North America home region
North American investment banks will primarily be affected byemerging formal regulatory changes embedded in the Dodd Frank Act. This regulation, implemented with the goal to protect the US banking sector, contains legislations impacting all financial divisions of the American financial service market.Additionally, US banks have to cope with the Basel III regulation, which has a global impact. Some of the Basel III propositions affect investment banks in each division of the company equally, while other parts specifically focus on the high-risk business sectors. In other words, US investment banks are affected by both the Dodd Frank Act and the Basel III propositions andtherefor face strong pressures to comply with these formal regulatory changes.
