What drives bank efficiency? The interaction of bank income diversification and ownership

Anh-Tuan Doan, Kun-Li Lin and Shuh-Chyi Doong

International Review of Economics & Finance, 2018, vol. 55, issue C, 203-219

Abstract: This paper examines the relation between income diversification and bank efficiency across 83 countries over the period 2003–2012. We also evaluate how ownership structure affects the impact of bank diversification on cost efficiency. Using a stochastic frontier approach to estimate bank cost efficiency, we find evidence that increased diversification tends to improve bank efficiency but the benefits of diversification are offset by the increased exposure to volatile non-interest activities. With respect to the impact of ownership, we find that state-owned banks with fewer volatile income sources are likely to be less efficient in terms of income diversification. Our results also reveal that more diversified foreign-owned banks tend to be less efficient in developed countries, while the increased foreign ownership of banks appears to improve the diversification benefits in developing countries after the financial crisis. Our findings highlight the implications of bank income diversification and ownership for efficiency and are relevant to bank regulators who are considering additional regulations on bank management.

Keywords: Income diversification; Ownership structure; Efficiency; Banking (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056017305282
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:55:y:2018:i:c:p:203-219

DOI: 10.1016/j.iref.2017.07.019

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().