Journal of Multinational Financial Management 11 (2001) 281–293 (Re)Testing the ‘follow the customer’ hypothesis in multinational bank expansion Jose ´ Paulo Esperanca a,b , Mohamed Azzim Gulamhussen b, * a Uniersity of California, Los Angeles, CA, USA b ISCTE-Instituto Superior de Ciencias de Trabalho e da Empresa, Lisbon, Portugal Received 29 July 1999; accepted 17 April 2000 Abstract Theory suggests that multinational banks follow their corporate and non-corporate customers. Previous empirical studies have tested the hypothesis that multinational banks follow their corporate customers. This study bridges a gap between the theory and previous empirical studies by testing the hypothesis that multinational banks also follow their non-corporate customers. We accomplish the purpose by empirically testing a model of the effect of home country factors on multinational bank expansion. Our results support the hypothesis that multinational banks also follow their non-corporate customers. © 2001 Elsevier Science B.V. All rights reserved. JEL classification: D82; F21; G21 Keywords: Asymmetric information; Banks; Foreign direct investment www.elsevier.com/locate/econbase 1. Introduction The most important monopolistic advantage in multinational bank expansion is the reputation amongst domestic customers and a special knowledge of their needs. This advantage, based on relational contracting (Williamson, 1981), gives banks a privileged opportunity to follow their customers abroad. The ‘follow the customer’ * Corresponding author. Tel: +44-118-9875123, ext. 6655; fax: +44-118-9314741. E-mail address: magn@iscte.pt (M.A. Gulamhussen). 1042-444X/01/$ - see front matter © 2001 Elsevier Science B.V. All rights reserved. PII: S1042-444X(01)00027-5