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Bank risk, business diversification, systemic designation and bank valuation

Author

Listed:
  • Doddy Ariefianto

    (Bina Nusantara University)

  • Irwan Trinugroho

    (Universitas Sebelas Maret)

Abstract

We study the relationship between bank value and bank risk (credit and liquidity risks), business diversification, and systemic designation using a multilevel econometric technique applied on a panel annual data comprising 576 commercial banks from 75 countries during the 2014–2019 period. This technique is employed to cope with inference issues because of nested data structure and to obtain generalizable insights from the heterogeneity pattern. We find that better credit and liquidity risk measures positively affect bank value. Nevertheless, both risk measures vary significantly from the second level (country) effect. Lastly, we find that systemic designation adversely affects bank value—a piece of evidence of possible weaning off “too big to fail” perception among investors.

Suggested Citation

  • Doddy Ariefianto & Irwan Trinugroho, 2022. "Bank risk, business diversification, systemic designation and bank valuation," Economics Bulletin, AccessEcon, vol. 42(2), pages 1103-1109.
    • Handle: RePEc:ebl:ecbull:eb-22-00291
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bank Risk; Business Diversification; Market Valuation; Systemic Designation and Multilevel Econometric;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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