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Does diversification affect the quality of loan portfolio?Panel Granger-causality evidence from US banks

Author

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  • Tran, Dung Viet
  • Ho, Sy-Hoa

Abstract

This paper investigates the direction of causality between bank business model and the quality of loan portfolio using a large sample of US banks. We employ the panel causality testing approach, developed by Dumitrescu and Hurlin (2012), and new technique of optimal lag selection of Hans et al (2017). Empirical results show that there is evidence of two-way causality between diversification and non-performing loans.

Suggested Citation

  • Tran, Dung Viet & Ho, Sy-Hoa, 2019. "Does diversification affect the quality of loan portfolio?Panel Granger-causality evidence from US banks," MPRA Paper 98186, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:98186
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    File URL: https://mpra.ub.uni-muenchen.de/98186/1/MPRA_paper_98186.pdf
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    More about this item

    Keywords

    Bank diversification; Non-performing loan; Panel Granger-causality;

    JEL classification:

    • 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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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