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Income diversification and bank performance nexus: Does corruption matter?

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

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.

Suggested Citation

  • Addai, Bismark & Tang, Wenjin & Gyimah, Adjei Gyamfi & Twumasi, Martinson Ankrah, 2022. "Income diversification and bank performance nexus: Does corruption matter?," Journal of Multinational Financial Management, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:mulfin:v:65:y:2022:i:c:s1042444x22000287
    DOI: 10.1016/j.mulfin.2022.100757
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    More about this item

    Keywords

    Bank revenue diversification; Corruption; Non-interest income; Financial performance; International banking; Generalized Method of Moment (GMM);
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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