How functional and geographic diversification affect bank profitability during the crisis

Brighi, Paola; Venturelli, Valeria

doi:10.1016/j.frl.2015.10.020

Cited by 39 publications

(22 citation statements)

References 42 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The regression coefficient of firm size (c'2 = .634, p. < .01) indicated that a higher firm size results in higher ROA to the banks. This result was consistent with the findings of some previous research works (Venturelli, 2016;Islam & Nishiyama, 2010). This outcome proved our initial hypothesis that a higher firm's size and ROA were positively related.…”

Section: 980supporting

confidence: 94%

“…The nexus between total assets (TA) and profitability through the mediating role of NIM in the Nepalese banking sector has been insignificantly tested by empirical studies. Brighi and Venturelli (2016) examined the link among geographic diversification and the profitability of banks over the period 2006-2012 under the general panel model with fixed effects. Their results showed that bank size has a positive impact on bank profitability.…”

Section: H1 (C)mentioning

confidence: 99%

See 1 more Smart Citation

The Mediating Role of NIM on Market Structure and Bank Performance: Empirical Confirmation from Listed Nepalese CBs

Budhathoki

Rai²

2020

IJFBS

View full text Add to dashboard Cite

This study examined the mediating role of net interest margin (NIM) on the nexus between market structure and banks’ performance. Two ordinary least-squares models with a path analysis model were applied to analyze the data. The first regression model measured the indirect effects of market structure, total assets, geographic expansion, and specialization on ROA through NIM and revealed that the higher market share of loans positively effects on bank’s performance and statistically insignificant. Similarly, the geographic expansion was observed to hurt the bank’s ROA, but statistically insignificant. On the other hand, the indirect effect of total asset size and specialization was negative, but the first one was statistically significant, and the second was statistically insignificant. The result of the second regression model measured the direct effect of antecedent variables on the ROA and revealed that the market structure, geographic expansion, and specialization were negatively related to performance measure ROA. However, the direct effect of total assets size was positively related to ROA and statistically significant. The results of the two regression models based on total effects revealed that a higher bank size appeared favorable to Nepalese CBs and was found to have positive effects on ROA but the geographic expansion was a negative effect on ROA, and statistically significant. The results of the study might be helpful to Nepalese bankers, regularity authorities, and other concerned stakeholders to take an effective decision about the direct, indirect, and total effects of chosen antecedent variables on consequent variables through the mediating role of NIM.

show abstract

Section: 980supporting

confidence: 94%

Section: H1 (C)mentioning

confidence: 99%

The Mediating Role of NIM on Market Structure and Bank Performance: Empirical Confirmation from Listed Nepalese CBs

Budhathoki

Rai²

2020

IJFBS

View full text Add to dashboard Cite

show abstract

“…Therefore, the measure of diversification is crucial for our research. As prior researches proved that, the Herfindahl-Hirschman Index (HHI) can be a good measure of diversification [42], while Tabak et al [43] showed that entropic index can also be used as a measure of diversification. Therefore, we follow the traditional research and use the HHI to measure the diversification of banks and the entropy index (ENTI) is used for checking the robustness of our results.…”

Section: The Diversified Use Of Entropymentioning

confidence: 99%

Does Income Diversification Benefit the Sustainable Development of Chinese Listed Banks? Analysis Based on Entropy and the Herfindahl–Hirschman Index

Jiang

Han

2018

Entropy

View full text Add to dashboard Cite

Abstract:We collected data pertaining to Chinese listed commercial banks from 2008 to 2016 and found that the competition between banks is becoming increasingly fierce. Commercial banks have actively carried out diversification strategies for greater returns, and the financial reports show that profits are increasingly coming from the non-interest income benefits of diversification strategies. However, diversification comes with risk. We built a panel threshold model and investigated the effect of income diversification on a bank's profitability and risk. Diversification was first measured by the Herfindahl-Hirschman index (HHI), and the results show that there is a nonlinear relationship between diversification and profitability or risk does exist. We introduced an interesting index based on the entropy to test the robustness of our model and found that a threshold effect exists in both our models, which is statistically significant. We believe the combination of the entropy index (ENTI) and the HHI enables more efficient study of the relationship between diversification and profitability or risk more efficiently. Bankers and their customers have increasingly been interested in income diversification, and they value risk as well. We suggest that banks of different sizes should adopt the corresponding diversification strategy to achieve sustainable development.

show abstract

“…Köhler [26] analyzed the impacts of business models on bank stability in 15 EU countries between 2002 and 2011, indicating that substantial benefits can be gained from income diversification. Brighi and Venturelli [27] reported evidence suggesting that greater diversification among different fee and commission components decreases bank risk and increases risk-adjusted profitability. Elsas et al [28] showed that diversification increases bank profitability and market valuation.…”

Section: Literature Reviewmentioning

confidence: 99%

Toward a More Resilient Financial System: Should Banks Be Diversified?

2018

View full text Add to dashboard Cite

This article empirically analyzes the effects of revenue diversification on the profitability and risk of a large sample of Eurozone banks over the period from 2000 to 2012. We use the generalized method of moments (GMM) estimator, which is also referred to as the system-GMM estimator. We conclude that higher income diversification favors bank profitability. However, our study does not find a significant relationship between revenue diversification and bank risk, even when considering a crisis period. Our results suggest that establishing restrictions in the universal banking model could damage the resilience of the financial system, and thus affect the sustainability of the uneven economic recovery in Europe. other banking activities [9]. The idea of isolating certain types of activities that are considered especially important to the real economy from other riskier, but less important, activities have also been shared by other recent proposals, such as the "Volcker rule" in the United States and the Vickers Commission report in the United Kingdom. These proposals imply restrictions on the universal banking model, in which banks offer a full range of financial services, and thus could lead to less diversified banks [10].This article complements the existing literature in various ways. First, this work contributes to the ongoing debate surrounding bank diversification by focusing on the Eurozone as an interesting case study. Countries in the Eurozone have become increasingly integrated and set apart from other parts of the EU by their economic management since 1999, following the establishment of the euro. Moreover, the sovereign debt crisis in 2010-2011 highlighted the greater interdependence of countries in the monetary union and emphasized the need to create an integrated financial framework to restore confidence in banks and the euro. The Banking Union, which was initiated in 2012 with the agreement on the establishment of a Single Supervisory Mechanism with the involvement of the European Central Bank (ECB), aims to deliver an integrated financial safety net for these countries. Second, the selected time span, from 2000 to 2012, considers the impact of both the 2008 financial crisis and the sovereign debt crisis starting in 2010 in the European banking sector. As the impact of the financial crisis on the real economy has urged policy makers and regulators to drastically change the "rules of the game" by proposing limits to banking activities, it is important to provide further insights into the effect of revenue diversification on bank performance. Most studies have provided evidence of the effect of revenue diversification under normal economic conditions ([11-13] among others). Third, we use a proxy for revenue diversification that reflects the balance of different types of income (interest, net commissions, trades, and other operating income). Finally, we use the generalized method of moments (GMM) estimator, which was developed for dynamic panel models by Arellano and Bover [14] and Blundell and Bond [...

show abstract

How functional and geographic diversification affect bank profitability during the crisis

Cited by 39 publications

References 42 publications

The Mediating Role of NIM on Market Structure and Bank Performance: Empirical Confirmation from Listed Nepalese CBs

The Mediating Role of NIM on Market Structure and Bank Performance: Empirical Confirmation from Listed Nepalese CBs

Does Income Diversification Benefit the Sustainable Development of Chinese Listed Banks? Analysis Based on Entropy and the Herfindahl–Hirschman Index

Toward a More Resilient Financial System: Should Banks Be Diversified?

Contact Info

Product

Resources

About