 Are there diversification benefits of increasing noninterest income in the Chinese banking industry?Li Li and Yu Zhang Journal of Empirical Finance, 2013, vol. 24, issue C, 151-165 Abstract: This paper assesses the potential diversification benefits of the increasing reliance on nontraditional business activities based on data from the Chinese banking industry in 1986–2008. At the aggregate level, there are diversification benefits of the increase in noninterest income. However, noninterest income has higher volatility and cyclicality than net interest income, and the marginal benefit of diversification decreases with the increase in noninterest income. At the bank level, the correlation coefficients of the growth rates of net interest income and noninterest income are mostly negative, which also suggests that there are diversification benefits of increasing the noninterest income. However, further model analysis indicates that the effect of the noninterest income share on the Chinese banking industry's revenue and risk is not significant. Overall, our findings suggest that noninterest income diversifies bank revenue, but increased reliance on noninterest income may worsen the risk/return trade-off for the Chinese banking industry. Keywords: Net interest income; Noninterest income; Income diversification; Bank risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:24:y:2013:i:c:p:151-165 DOI: 10.1016/j.jempfin.2013.10.004 Access Statistics for this article Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff More articles in Journal of Empirical Finance from Elsevier |
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