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Operational Diversification and Financial Performance of Sub-Saharan Africa Commercial Banks: Static and Dynamic Approach

Odunayo Magret Olarewaju (), Stephen Oseko Migiro () and Mabutho Sibanda ()
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Odunayo Magret Olarewaju: University of KwaZulu-Nata
Stephen Oseko Migiro: University of KwaZulu-Natal
Mabutho Sibanda: University of KwaZulu-Natal

Acta Universitatis Danubius. OEconomica, 2017, issue 13(5), 84-106

Abstract: Diversification is a key area in financial institution since their activities have gone beyond the traditional intermediary role. It is in this view that the study examines the effect of operational diversification on bank performance using the pooled, fixed, random and System GMM for the period 2006 to 2015 across 250 commercial banks from 30 countries in the region. Due to the robustness of SYS-GMM, the findings of this study reveal that using Herfindahl Hirschman index, all the dimensions of operational diversification; asset, liability, deposit and income including control variables such as bank size, liquidity, loan loss ratio, cost to income ratio and the lagged return on average asset (ROAA (L1)) are significant at 1% level with only deposit diversification (HHIde), liquidity (LOD) and cost to income ratio (CIR) which is a measure of banks’ efficiency having negative relationship with ROAA. Therefore, this study concludes that diversification of operational activities in SSA commercial banks have direct and significant effect on their financial performances. But, greater attention should be taken to monitor the diversification strategy so as to ensure that no dimension of banks’ activities is neglected.

Keywords: Herfindahl Hirschman Index; Structure Conduct Performance; operational diversification; System-GMM; Sub-Saharan Africa (search for similar items in EconPapers)
Date: 2017
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