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Income diversification and cost-efficiency of Vietnamese banks

Author

Listed:
  • Phong Hoang Nguyen
  • Duyen Thi Bich Pham

Abstract

Purpose - The study examines the impact of income diversification on cost efficiency of Vietnamese commercial banks over the period 2005–2017. Design/methodology/approach - Income diversification indicators are designed based on measures of diversifying loan portfolio. Besides the traditional model, we use the Fractional Regression to estimate the model with dependent variables defined on the unit interval. Findings - Through the two-stage DEA analysis, we find that the income diversification has a positive impact on the cost efficiency of banks. In addition, this impact is stronger for unlisted banks and in the phase of banking system ongoing restructuring. Originality/value - The use of a variety of income diversification measures and estimation methods for models with bounded dependent variable has provided a reliable empirical evidence of the advantages of implementing a strategy on structural diversity of both interest and non-interest income in the emerging banking markets such as Vietnam.

Suggested Citation

  • Phong Hoang Nguyen & Duyen Thi Bich Pham, 2020. "Income diversification and cost-efficiency of Vietnamese banks," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 16(5), pages 623-643, April.
    • Handle: RePEc:eme:ijmfpp:ijmf-06-2019-0230
    DOI: 10.1108/IJMF-06-2019-0230
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    Citations

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    Cited by:

    1. Thuy Thu Nguyen & Hai Hong Ho & Duy Van Nguyen & Anh Cam Pham & Trang Thu Nguyen, 2021. "The Effects of Business Model on Bank’s Stability," IJFS, MDPI, vol. 9(3), pages 1-12, August.

    More about this item

    Keywords

    Cost efficiency; Income diversification; Emerging banking; Fractional regression; G21; G28; G34;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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