Income diversification and bank performance nexus: Does corruption matter?

Bismark Addai, Wenjin Tang, Adjei Gyamfi Gyimah and Martinson Ankrah Twumasi

Journal of Multinational Financial Management, 2022, vol. 65, issue C

Abstract: This study examines the impact of income diversification and corruption on banks’ performance. In particular, we focus on the impact of the extent of corruption in a country on the relationship between banks’ income diversification and performance. We utilize annual data on 715 banks from 52 countries in Africa over a period of eight years, 2011–2018. The results reveal that income diversification enhances banks' profit and risk-adjusted profit. On the other hand, corruption significantly reduces bank performance. We find that the positive impact of income diversification on performance is undermined in countries with a high level of corruption. We also examine the effect of corruption on the diversification–performance nexus across bank ownership groups using subsamples of local, regional African, and non-African banks. We find that corruption affects especially the operation of local and regional African banks, and affects less the operation of non-African banks. Our findings have essential implications for the regulation of banks and financial stability in general in African countries.

Keywords: Bank revenue diversification; Corruption; Non-interest income; Financial performance; International banking; Generalized Method of Moment (GMM) (search for similar items in EconPapers)
JEL-codes: D72 F23 G21 L25 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:65:y:2022:i:c:s1042444x22000287

DOI: 10.1016/j.mulfin.2022.100757

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