The effects of focus versus diversification on bank performance: Evidence from Chinese banks

Allen N. Berger, Iftekhar Hasan and Mingming Zhou ()

Journal of Banking & Finance, 2010, vol. 34, issue 7, 1417-1435

Abstract: This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996-2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus indices, which are based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation may play important mitigating roles. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.

Keywords: Diversification; Focus; Efficiency; Chinese; banking (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (227)

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Working Paper: The effects of focus versus diversification on bank performance: Evidence from Chinese banks (2010)
Working Paper: The effects of focus versus diversification on bank performance: Evidence from Chinese banks (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:34:y:2010:i:7:p:1417-1435

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