Abstract

This paper investigates the "follow the customer" hypothesis using the case of foreign bank expansions in Taiwan. Our customers here contain both corporate entities and individuals, where the former is commonly seen in the literature, the latter has not yet been explored except for Esperanca and Gulamhussen (2001). Because of Taiwan's unique features, our individual customers include only the Philippine and Thai laborers. Furthermore, we also consider two types of foreign expansions, where the first one is physical expansion by setting up new branches by foreign banks and the second one is financial expansion, including increasing invested capital, asset, deposit, loan, revenue and personnel expenses. Our results show that when foreign expansion is the physical expansion, the hypothesis holds for both corporate and individual customers. However, when it is financial expansion, results change slightly for different proxies of financial expansion.