Diversification, efficiency and risk of banks: Evidence from emerging economies

Ji Wu, Limei Chen, Minghua Chen and Bang Jeon

Emerging Markets Review, 2020, vol. 45, issue C

Abstract: This paper examines the impact of business diversification of banks on their risk, with efficiency taken into consideration as a conduit. Using bank-level data from more than 1000 commercial banks in 39 emerging economies during the period of 2000–2016, we find that increased business diversification exerts two competing effects on bank risk. The direct effect of increased diversification bolsters the stability of banks, but it is offset by the indirect effect whereby lowered efficiency, which is resulted from higher diversification, increases the riskiness of banks. Thus, the overall benefits from bank business diversification on bank stability rely on the trade-off of the two competing forces.

Keywords: Diversification; Efficiency; Bank risk; Emerging economies (search for similar items in EconPapers)
JEL-codes: G15 G21 L25 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:45:y:2020:i:c:s1566014120302284

DOI: 10.1016/j.ememar.2020.100720

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