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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).

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  • 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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    5. Li, Xingjian & Feng, Hongrui & Zhao, Sebastian & Carter, David A., 2021. "The effect of revenue diversification on bank profitability and risk during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 43(C).
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    9. Muhammad Suhail Rizwan & Muhammad Moinuddin & Barbara L’Huillier & Dawood Ashraf, 2018. "Does a one-size-fits-all approach to financial regulations alleviate default risk? The case of dual banking systems," Journal of Regulatory Economics, Springer, vol. 53(1), pages 37-74, February.
    10. Ochenge, Rogers, 2022. "The effect of revenue diversification on bank profitability and stability during the COVID-19 Pandemic: Evidence from Kenya," KBA Centre for Research on Financial Markets and Policy Working Paper Series 59, Kenya Bankers Association (KBA).
    11. Dincer, Hasan & Hacioglu, Umit & Tatoglu, Ekrem & Delen, Dursun, 2019. "Developing a hybrid analytics approach to measure the efficiency of deposit banks," Journal of Business Research, Elsevier, vol. 104(C), pages 131-145.
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    More about this item

    Keywords

    South Asian countries; Financial deregulation; Stock markets; Listed public banks; Bank diversification;
    All these keywords.

    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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