The effects of focus versus diversification on bank performance: Evidence from Chinese banks

Allen N. Berger, Iftekhar Hasan and Mingming Zhou ()

No 4/2010, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996-2006 period. We construct a new measure, economies of diversi-fication, and compare the results to those of the more conventional focus indices, which are based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversifica-tion are associated with reduced profits and higher costs. These results are robust regardless of al-ternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation play an important mitigating role. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.

Keywords: Diversification; focus; efficiency; Chinese banking (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

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Related works:
Journal Article: The effects of focus versus diversification on bank performance: Evidence from Chinese banks (2010)
Working Paper: The effects of focus versus diversification on bank performance: Evidence from Chinese banks (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2010_004

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