Bank diversification, performance, and corporate governance: evidence from China

Hsin-Yu Liang, Liang-wei Kuo, Kam C. Chan and Sheng-Hung Chen

Asia-Pacific Journal of Accounting & Economics, 2020, vol. 27, issue 4, 389-405

Abstract: This paper examines the merit of bank diversification using a sample of listed Chinese national banks during 2003–2012. We find that income source diversity positively affects profitability but negatively affects operating efficiency and market valuation. By exploiting an exogenous change in the regulatory attitude toward diversification in 2008, we find that the positive diversification-profitability relation before 2008 changes to negative afterwards; meanwhile, the diversification discount turns to premium. We conjecture that the source of discount captures changes in the diversification-induced agency costs. Finally, we find that governance matters as it enhances the positive diversification-profitability relation and mitigates diversification discount.

Date: 2020
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/16081625.2018.1452618

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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