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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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    2. Francisco Zabala Aguayo & Beata Ślusarczyk, 2020. "Risks of Banking Services’ Digitalization: The Practice of Diversification and Sustainable Development Goals," Sustainability, MDPI, vol. 12(10), pages 1-10, May.
    3. Syed Moudud-Ul-Huq & Rabaka Akter & Tanmay Biswas, 2020. "Impact of Financial Crisis on Credit Risk: Pre- and Post-financial Crises 
in an Emerging Economy," FIIB Business Review, , vol. 9(2), pages 118-132, June.
    4. Minzhi Wu & Emili Tortosa-Ausina, 2020. "Bank Diversification and Focus in Disruptive Times: China, 2007–2018," Working Papers 2020/21, Economics Department, Universitat Jaume I, Castellón (Spain).
    5. Alouane, Nour & Kahloul, Ines & Grira, Jocelyn, 2022. "The Trilogy of Ownership, Income Diversification, and Performance Nexus: Empirical Evidence from Tunisian Banks," Finance Research Letters, Elsevier, vol. 45(C).
    6. Paltrinieri, Andrea & Dreassi, Alberto & Rossi, Simone & Khan, Ashraf, 2021. "Risk-adjusted profitability and stability of Islamic and conventional banks: Does revenue diversification matter?," Global Finance Journal, Elsevier, vol. 50(C).
    7. Nguyen, Quang Khai, 2022. "Audit committee structure, institutional quality, and bank stability: evidence from ASEAN countries," Finance Research Letters, Elsevier, vol. 46(PA).
    8. Laura Baselga-Pascual & Olga Del Orden-Olasagasti & Antonio Trujillo-Ponce, 2018. "Toward a More Resilient Financial System: Should Banks Be Diversified?," Sustainability, MDPI, vol. 10(6), pages 1-16, June.
    9. Fuerst, Franz & Mansley, Nick & Wang, Zilong, 2021. "Do specialist funds outperform? Evidence from European non-listed real estate funds," Research in International Business and Finance, Elsevier, vol. 58(C).
    10. Adesina, Kolade Sunday, 2021. "How diversification affects bank performance: The role of human capital," Economic Modelling, Elsevier, vol. 94(C), pages 303-319.
    11. Florian Diener & Miroslav Špaček, 2021. "Digital Transformation in Banking: A Managerial Perspective on Barriers to Change," Sustainability, MDPI, vol. 13(4), pages 1-27, February.
    12. Syed Moudud-Ul-Huq, 2021. "The Impact of Business Cycle on Banks’ Capital Buffer, Risk and Efficiency: A Dynamic GMM Approach from a Developing Economy," Global Business Review, International Management Institute, vol. 22(4), pages 921-940, August.
    13. 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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