Determinants of income diversification: evidence from Chinese banks

What drives the banks' diversification decision? A dynamic nonlinear panel data approach

“…Such shifts permit banks to strengthen their positioning in the market. This finding is inconsistent with recent evidence that suggests that banks with higher market share tend to expand their business lines to reap economies of scale and scope while benefiting of diversification (Meng et al, 2017).…”

“…In fact, banks having a strong foothold in core traditional activities as well as creative and innovative banking firms that operate under an expanded banking industry have high propensity to widen the scope of their business lines. This goes in line with Meng et al () who report that an expanding banking sector is closely linked to an increased exposure to nonlending investments.…”

“…First, it fills the gap in the literature by exploring the other side of the coin by investigating the main motives of income diversification in the hope of providing background information and more insights for future research concerning this topic. Apart from Meng et al () and Hahm (), we are unaware of any empirical evidence that addresses this issue (i.e., identification of the determinants of bank income diversification).…”

“…The degree of income diversification may be influenced by bankspecific factors such as the risk-adjusted profitability measured by raroae (Chiorazzo et al, 2008;Mercieca et al, 2007 ;Stiroh & Rumble, 2006), the financial stability proxied by the z score (Mercieca et al, 2007;Stiroh & Rumble, 2006), the bank size (Mercieca et al, 2007;Meslier, Tacneng, & Tarazi, 2014;Nguyen, Skully, & Perera, 2012a, 2012b, the capitalization (Chiorazzo et al, 2008;Lepetit, Nys, Rous, & Tarazi, 2008;Mercieca et al, 2007;Meslier et al, 2014), the liquidity (Shim, 2013), the loan loss provision ratio (Baele et al, 2007;Lee, Yang, & Chang, 2014;Pennathur, Subrahmanyam, & Vishwasrao, 2012), the nonperforming loans ratio (Lee, Hsieh, & Yang, 2014;Nguyen, Skully, Perera, 2012a), the cost efficiency (Baele et al, 2007;Elsas et al, 2010;Nguyen, Skully, Perera, 2012a, 2012b, the deposit ratio (Lee et al,2014b), the net interest margin ratio (Lin, Chung, Hsieh, & Wu, 2012), the assets growth (Sanya & Wolfe, 2011), the loans-to-assets ratio (Chiorazzo et al, 2008;Meslier et al, 2014;Stiroh & Rumble, 2006), the cost of production (Meng, Cavoli, & Deng, 2017), the foreign ownership (Berger, Hasan, & Zhou, 2010;Meslier et al, 2014;Nguyen, Skully, Perera, 2012a;Pennathur et al, 2012), the s...…”

“…Apart from Meng et al (2017) and Hahm (2008), we are unaware of any empirical evidence that addresses this issue (i.e., identification of the determinants of bank income diversification).…”