Income diversification and bank performance: evidence from BRICS nations
International Journal of Productivity and Performance Management
ISSN: 1741-0401
Article publication date: 19 November 2018
Issue publication date: 19 November 2018
Abstract
Purpose
The purpose of this paper is to examine the impact of income diversification on bank performance in BRICS countries as a structural response to concentration risk. The authors argue that effectiveness of this approach is conditional upon its extent and quality. To understand the role of firm-specific characteristics on effectiveness of diversification, the authors examine this relationship across asset sizes.
Design/methodology/approach
An unbalanced panel data set of 169 BRICS banks is sampled over the period 2001–2015. Fixed effect models and system generalized method of moments techniques are used to test the relationship between diversification and bank performance using alternate measures.
Findings
Results indicate a positive relationship between diversification and performance measured in terms of bank risk and returns for medium and large size banks. However, for small banks this relationship is negative suggesting a “diversification discount.”
Originality/value
The study indicates that diversification as a risk mitigating tool can be effective but the managers and regulators should not emphasize on the “one-size-fits-all” approach for all banks. Policy frameworks for controlling concentration risk should be developed keeping in mind factors like bank size, customer base and financial leverage which brings variations to the risk profile of banks.
Keywords
Citation
Sharma, S. and Anand, A. (2018), "Income diversification and bank performance: evidence from BRICS nations", International Journal of Productivity and Performance Management, Vol. 67 No. 9, pp. 1625-1639. https://doi.org/10.1108/IJPPM-01-2018-0013
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited