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The effects of revenue diversification and cross border banking on risk and return of banks in Africa

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  • Sissy, Aisha Mohammed
  • Amidu, Mohammed
  • Abor, Joshua Yindenaba

Abstract

The paper analyses the implications of revenue diversification and cross-border banking for risk and return. We sample 320 banks across 29 African countries and employ System GMM estimator as a methodological approach to shed further light on the diversification-stability nexus by examining the complex interaction between three key variables: cross-border banking, diversification and bank stability. The results suggest that exploration risk reduces diversification as the level of capital increases when banks cross border to diversify across revenue generating activities. Our analyses further show that, banks in Africa derive absolute benefits from diversification if they cross border and diversify their revenue base concurrently. These results are robust to a range of controls including alternative variable specifications, regulatory environment that bank operate and methodology.

Suggested Citation

  • Sissy, Aisha Mohammed & Amidu, Mohammed & Abor, Joshua Yindenaba, 2017. "The effects of revenue diversification and cross border banking on risk and return of banks in Africa," Research in International Business and Finance, Elsevier, vol. 40(C), pages 1-18.
  • Handle: RePEc:eee:riibaf:v:40:y:2017:i:c:p:1-18
    DOI: 10.1016/j.ribaf.2016.09.017
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    References listed on IDEAS

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    1. repec:eee:finlet:v:22:y:2017:i:c:p:101-104 is not listed on IDEAS

    More about this item

    Keywords

    Banks; Diversification; Cross-border banking; Developing countries;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania

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