Should Banks Be Diversified? Evidence from Individual Bank Loan Portfolios

Viral Acharya, Iftekhar Hasan and Anthony Saunders
Additional contact information
Anthony Saunders: New York University

The Journal of Business, 2006, vol. 79, issue 3, 1355-1412

Abstract: We study the effect of loan portfolio focus versus diversification on the return and the risk of 105 Italian banks over the period 1993–99 using data on bank-by-bank exposures to different industries and sectors. We find that diversification is not guaranteed to produce superior performance and/or greater safety for banks. For high-risk banks, diversification reduces bank return while producing riskier loans. For low-risk banks, diversification produces either an inefficient risk-return trade-off or only a marginal improvement. Our results are consistent with a deterioration in the effectiveness of bank monitoring at high risk-levels and upon lending expansion into newer or competitive industries.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (335)

Downloads: (external link)
http://dx.doi.org/10.1086/500679 main text (application/pdf)
Access to the online full text or PDF requires a subscription.

Related works:
Working Paper: Should banks be diversified? Evidence from individual bank loan portfolios (2002)
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:ucp:jnlbus:v:79:y:2006:i:3:p:1355-1412

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().