Bank risk, business diversification, systemic designation and bank valuation

Doddy Ariefianto () and Irwan Trinugroho ()
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Doddy Ariefianto: Bina Nusantara University
Irwan Trinugroho: Universitas Sebelas Maret

Economics Bulletin, 2022, vol. 42, issue 2, 1103 - 1109

Abstract: We study the relationship between bank value and bank risk (credit and liquidity risks), business diversification, and systemic designation using a multilevel econometric technique applied on a panel annual data comprising 576 commercial banks from 75 countries during the 2014–2019 period. This technique is employed to cope with inference issues because of nested data structure and to obtain generalizable insights from the heterogeneity pattern. We find that better credit and liquidity risk measures positively affect bank value. Nevertheless, both risk measures vary significantly from the second level (country) effect. Lastly, we find that systemic designation adversely affects bank value—a piece of evidence of possible weaning off “too big to fail” perception among investors.

Keywords: Bank Risk; Business Diversification; Market Valuation; Systemic Designation and Multilevel Econometric (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Date: 2022-06-30
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