Should banks diversify or focus? Know thyself: The role of abilities

Bill B. Francis, Iftekhar Hasan, A. Melih Küllü and Mingming Zhou ()

Economic Systems, 2018, vol. 42, issue 1, 106-118

Abstract: The paper investigates whether diversification/focus across assets, industries and borrowers affects bank performance when banks’ abilities (screening and monitoring) are considered. The initial results show that diversification (focus) at the asset, industry and borrower levels is expected to decrease (increase) returns. However, once banks’ screening and monitoring abilities are controlled for, the effect of diversification/focus either gets weaker or disappears. Further, in some cases, these abilities enhance banks’ long-run performance, but in others they prove to be costly, at least, in the short run. Thus, the level of monitoring and screening abilities should be taken into consideration in understanding, planning and implementing diversification/focus strategies.

Keywords: Asset diversification; Industry diversification; Borrower diversification; Monitoring; Screening; Bank performance (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S093936251830027X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:42:y:2018:i:1:p:106-118

DOI: 10.1016/j.ecosys.2017.12.001

Access Statistics for this article

Economic Systems is currently edited by R. Frensch

More articles in Economic Systems from Elsevier Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Liu ().