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Measuring corporate diversity in financial services: a diversity index

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  • Jonathan Michie
  • Christine Oughton

Abstract

This paper provides a measure of corporate diversity in financial services. Our index is based on four components: ownership; competitiveness; balance sheet structure/resilience; and geographic spread. The first of these sub-indexes measures ownership diversity based on the Berry index of diversification and the Gini-Simpson index of biodiversity. It captures the extent of diversity in ownership types – for the UK, banks, mutuals, and the government owned National Savings & Investment – where each of these have different objectives, creating diversity in behaviour. Our second sub-index captures the extent of competition, and is based on the inverse of the Hirschmann-Herfindahl index of concentration. Our third sub-index measures diversity in balance sheet structures and resilience across the financial sector. Our final sub-index captures the extent of geographic spread and the regional concentration of financial services. These indicators are combined into a single index – the D-Index – that measures diversity in financial services. The D-Index shows a marked decline in the run-up to the 2007–2009 financial crisis, followed by further falls during 2008 and 2009. Since then, the index has remained more or less flat. We are no closer to creating the conditions – of diversity – to avoid a repeat of the 2007-2009 global financial crisis.

Suggested Citation

  • Jonathan Michie & Christine Oughton, 2022. "Measuring corporate diversity in financial services: a diversity index," International Review of Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 308-337, May.
    • Handle: RePEc:taf:irapec:v:36:y:2022:i:3:p:308-337
    DOI: 10.1080/02692171.2022.2090522
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