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Income diversification and bank performance: evidence from BRICS nations

Author

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  • Shweta Sharma
  • Anand Anand

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.

Suggested Citation

  • Shweta Sharma & Anand Anand, 2018. "Income diversification and bank performance: evidence from BRICS nations," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 67(9), pages 1625-1639, November.
    • Handle: RePEc:eme:ijppmp:ijppm-01-2018-0013
    DOI: 10.1108/IJPPM-01-2018-0013
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    Citations

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    Cited by:

    1. Sherika Antao & Ajit Karnik, 2022. "Bank Performance and Noninterest Income: Evidence from Countries in the Asian Region," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(3), pages 477-505, September.
    2. Haykel Zouaoui & Faten Zoghlami, 2023. "What do we know about the impact of income diversification on bank performance? A systematic literature review," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(3), pages 286-309, September.
    3. Muhammad Haris & Yong Tan & Ali Malik & Qurat Ul Ain, 2020. "A Study on the Impact of Capitalization on the Profitability of Banks in Emerging Markets: A Case of Pakistan," JRFM, MDPI, vol. 13(9), pages 1-21, September.
    4. Filiz Karpuz & Erdal Güryay & Dervis Kirikkaleli, 2021. "Sustainable-Performance Instrument Development and Validation in the Northern Cyprus Banking Sector," Sustainability, MDPI, vol. 13(14), pages 1-14, July.

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