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Does bank diversification heterogeneously affect performance and risk-taking in ASEAN emerging economies?

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  • Moudud-Ul-Huq, Syed
  • Ashraf, Badar Nadeem
  • Gupta, Anupam Das
  • Zheng, Changjun

Abstract

In this study, we contribute to the ongoing debate on the costs and benefits of bank diversification. Diversification may benefit banks if diversified activities are inherently less risky or yield a high return, while it may hurt banks if diversified activities are more dangerous or possess low return. Using bank-level data from Indonesia, Malaysia, the Philippines, Thailand, and Vietnam over the period 2011–2015, we find that overall banks benefit from diversification; that is, the diversified banks have higher performance and lower risk. However, we further observe that diversified activities heterogeneously benefit banks. While the revenue diversification has a robust positive impact on bank performance and stability, the effect of assets diversification varies from country-to-country. Our results imply that banks can prioritize activities for diversification to maximize the benefits.

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  • Moudud-Ul-Huq, Syed & Ashraf, Badar Nadeem & Gupta, Anupam Das & Zheng, Changjun, 2018. "Does bank diversification heterogeneously affect performance and risk-taking in ASEAN emerging economies?," Research in International Business and Finance, Elsevier, vol. 46(C), pages 342-362.
  • Handle: RePEc:eee:riibaf:v:46:y:2018:i:c:p:342-362
    DOI: 10.1016/j.ribaf.2018.04.007
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    Cited by:

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    2. PHAM Quoc Viet, 2020. "The Role of Block Shareholders in the Relationship between Diversification and Bank Performance in Vietnam," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 975-993.
    3. Florian Diener & Miroslav Špaček, 2021. "Digital Transformation in Banking: A Managerial Perspective on Barriers to Change," Sustainability, MDPI, Open Access Journal, vol. 13(4), pages 1-27, February.
    4. Francisco Zabala Aguayo & Beata Ślusarczyk, 2020. "Risks of Banking Services’ Digitalization: The Practice of Diversification and Sustainable Development Goals," Sustainability, MDPI, Open Access Journal, vol. 12(10), pages 1-10, May.
    5. Laura Baselga-Pascual & Olga Del Orden-Olasagasti & Antonio Trujillo-Ponce, 2018. "Toward a More Resilient Financial System: Should Banks Be Diversified?," Sustainability, MDPI, Open Access Journal, vol. 10(6), pages 1-16, June.
    6. Syed Moudud-Ul-Huq, 2019. "Banks’ capital buffers, risk, and efficiency in emerging economies: are they counter-cyclical?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 467-492, December.

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    More about this item

    Keywords

    Income diversification; Assets diversification; Performance; Risk; Emerging economies; ASEAN;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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