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Bank diversification, performance and stock market response: Evidence from listed public banks in South Asian countries

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  • Edirisuriya, Piyadasa
  • Gunasekarage, Abeyratna
  • Dempsey, Michael

Abstract

Our concern in the present paper is with the financial viability of banks in the recently liberalised economies of the South Asian region as they have diversified their revenue and assets bases. To this end, we examine how stock markets have responded to bank diversification in this region over the period start-1999 to end-2012. We find that when banks diversify from interest-only income, they achieve higher market-to-book valuations and improved solvency, but only up to a point, beyond which these performance indicators are negatively associated with higher levels of diversification. It appears that a continued diversification of assets bases away from traditional loan assets does not of itself imply an improved market performance. We explore these issues in the context of four South Asian countries (Bangladesh, India, Pakistan, and Sri Lanka).

Suggested Citation

  • Edirisuriya, Piyadasa & Gunasekarage, Abeyratna & Dempsey, Michael, 2015. "Bank diversification, performance and stock market response: Evidence from listed public banks in South Asian countries," Journal of Asian Economics, Elsevier, vol. 41(C), pages 69-85.
  • Handle: RePEc:eee:asieco:v:41:y:2015:i:c:p:69-85
    DOI: 10.1016/j.asieco.2015.09.003
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    1. repec:kap:regeco:v:53:y:2018:i:1:d:10.1007_s11149-017-9340-z is not listed on IDEAS

    More about this item

    Keywords

    South Asian countries; Financial deregulation; Stock markets; Listed public banks; Bank diversification;

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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