Heterogeneous patterns of income diversification effects in U.S. bank holding companies

Jinyong Kim and Yong-Cheol Kim

International Review of Economics & Finance, 2020, vol. 69, issue C, 731-749

Abstract: We identify heterogeneous patterns of income diversification effects across full distributions of risk-adjusted performance and over time using the quantile regression approach to analyze U.S. bank holding company data for the period 2000–2013. Banks that diversify by entering noninterest income businesses show negative net effects in the first stage, which explain the diversification discount. However, the diversifying banks gradually benefit and the diversification discount decreases in the second stage. The main empirical findings demonstrate a greater diversification discount in the upper quantiles of the performance distributions before 2007, where the discount appears to disappear afterwards. These findings suggest that while the diversification discount reflects a loss of comparative advantage in the early adjustment stage, the benefit of diversification will offset the cost after a costly adjustment.

Keywords: Heterogeneous diversification effects; Bank holding companies; Adjustment costs (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:69:y:2020:i:c:p:731-749

DOI: 10.1016/j.iref.2020.07.003

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