IDEAS home Printed from https://ideas.repec.org/a/rjr/romjef/vy2018i3p29-41.html
   My bibliography  Save this article

The Influence of Income Diversification on Operating Stability of the Chinese Commercial Banking Industry

Author

Listed:
  • Chunyang WANG

    (School of Business, Macau University of Science and Technology, China. Corresponding author.)

  • Yongjia LIN

    (School of Business, Macau University of Science and Technology, China.)

Abstract

This paper investigates the effects of diversified income structures on the risk of commercial banks in China. We selected 1111 samples of 101 different banks of China (including large and small banks) between 2006 and 2016. A two-step system Generalized Method of Moments is utilized, which does not need to know the exact distribution information of random error term to evaluate the diversified income of Chinese commercial banking industry’s effect on risk. The final results show that the operating stability of the banking industry in China will decrease when the share of non-interest income or diversification level increase. This is quite different from previous studies in which researchers thought that a diversified strategy could reduce banking risks. The references for the policy makers are provided from intermediary business and financial supervision.

Suggested Citation

  • Chunyang WANG & Yongjia LIN, 2018. "The Influence of Income Diversification on Operating Stability of the Chinese Commercial Banking Industry," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 29-41, September.
  • Handle: RePEc:rjr:romjef:v::y:2018:i:3:p:29-41
    as

    Download full text from publisher

    File URL: http://www.ipe.ro/rjef/rjef3_18/rjef3_2018p29-41.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    2. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    3. Stiroh, Kevin J, 2004. "Diversification in Banking: Is Noninterest Income the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 853-882, October.
    4. Silva Buston, Consuelo, 2016. "Active risk management and banking stability," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 203-215.
    5. De Jonghe, Olivier & Diepstraten, Maaike & Schepens, Glenn, 2015. "Banks’ size, scope and systemic risk: What role for conflicts of interest?," Journal of Banking & Finance, Elsevier, vol. 61(S1), pages 3-13.
    6. Curi, Claudia & Lozano-Vivas, Ana & Zelenyuk, Valentin, 2015. "Foreign bank diversification and efficiency prior to and during the financial crisis: Does one business model fit all?," Journal of Banking & Finance, Elsevier, vol. 61(S1), pages 22-35.
    7. Saghi-Zedek, Nadia, 2016. "Product diversification and bank performance: Does ownership structure matter?," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 154-167.
    8. Viral V. Acharya & Iftekhar Hasan & Anthony Saunders, 2006. "Should Banks Be Diversified? Evidence from Individual Bank Loan Portfolios," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1355-1412, May.
    9. DeYoung, Robert & Roland, Karin P., 2001. "Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 54-84, January.
    10. Schmid, Markus M. & Walter, Ingo, 2009. "Do financial conglomerates create or destroy economic value?," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 193-216, April.
    11. Robert DeYoung & Tara Rice, 2004. "Noninterest Income and Financial Performance at U.S. Commercial Banks," The Financial Review, Eastern Finance Association, vol. 39(1), pages 101-127, February.
    12. Sissy, Aisha Mohammed & Amidu, Mohammed & Abor, Joshua Yindenaba, 2017. "The effects of revenue diversification and cross border banking on risk and return of banks in Africa," Research in International Business and Finance, Elsevier, vol. 40(C), pages 1-18.
    13. Khan, Muhammad Saifuddin & Scheule, Harald & Wu, Eliza, 2017. "Funding liquidity and bank risk taking," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 203-216.
    14. Vazquez, Francisco & Federico, Pablo, 2015. "Bank funding structures and risk: Evidence from the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 1-14.
    15. Stiroh, Kevin J., 2006. "A Portfolio View of Banking with Interest and Noninterest Activities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1351-1361, August.
    16. Chen, Minghua & Wu, Ji & Jeon, Bang Nam & Wang, Rui, 2017. "Do foreign banks take more risk? Evidence from emerging economies," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 20-39.
    17. Nadia Saghi-Zedek, 2016. "Product diversification and bank performance: does ownership structure matter?," Post-Print halshs-01342528, HAL.
    18. Williams, Barry, 2016. "The impact of non-interest income on bank risk in Australia," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 16-37.
    19. Pornchai Chunhachinda & Li Li, 2014. "Income Structure, Competitiveness, Profitability, and Risk: Evidence from Asian Banks," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(03), pages 1-23.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Chunyang & Lin, Yongjia, 2021. "Income diversification and bank risk in Asia Pacific," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jeon, Bang Nam & Wu, Ji & Chen, Limei & Chen, Minghua, 2020. "Diversification, efficiency and risk of banks: New consolidating evidence from emerging economies," School of Economics Working Paper Series 2020-10, LeBow College of Business, Drexel University.
    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. Abuzayed, Bana & Al-Fayoumi, Nedal & Molyneux, Phil, 2018. "Diversification and bank stability in the GCC," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 17-43.
    4. Abedifar, Pejman & Molyneux, Philip & Tarazi, Amine, 2018. "Non-interest income and bank lending," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 411-426.
    5. Minzhi Wu & Emili Tortosa-Ausina, 2020. "Bank Diversification and Focus in Disruptive Times: China, 2007–2018," Working Papers 2020/21, Economics Department, Universitat Jaume I, Castellón (Spain).
    6. Wu, Ji & Chen, Limei & Chen, Minghua & Jeon, Bang Nam, 2020. "Diversification, efficiency and risk of banks: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 45(C).
    7. Williams, Barry & Rajaguru, Gulasekaran, 2022. "The evolution of bank revenue and risk in the Asia-Pacific Region," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    8. Zouaoui, Haykel & Zoghlami, Feten, 2020. "On the income diversification and bank market power nexus in the MENA countries: Evidence from a GMM panel-VAR approach," Research in International Business and Finance, Elsevier, vol. 52(C).
    9. Moudud-Ul-Huq, Syed & Ashraf, Badar Nadeem & Gupta, Anupam Das & Zheng, Changjun, 2018. "Does bank diversification heterogeneously affect performance and risk-taking in ASEAN emerging economies?," Research in International Business and Finance, Elsevier, vol. 46(C), pages 342-362.
    10. Wang, Chunyang & Lin, Yongjia, 2021. "Income diversification and bank risk in Asia Pacific," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    11. Williams, Barry, 2016. "The impact of non-interest income on bank risk in Australia," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 16-37.
    12. Velasco, Pilar, 2022. "Is bank diversification a linking channel between regulatory capital and bank value?," The British Accounting Review, Elsevier, vol. 54(4).
    13. Kim, Hakkon & Batten, Jonathan A. & Ryu, Doojin, 2020. "Financial crisis, bank diversification, and financial stability: OECD countries," International Review of Economics & Finance, Elsevier, vol. 65(C), pages 94-104.
    14. Westman, Hanna, 2011. "The impact of management and board ownership on profitability in banks with different strategies," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3300-3318.
    15. Mamatzakis, Emmanuel & Bermpei, Theodora, 2014. "What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 102-117.
    16. Tran, Dung Viet, 2020. "Bank business models and liquidity creation," Research in International Business and Finance, Elsevier, vol. 53(C).
    17. Dang, Van Dan, 2020. "Do non-traditional banking activities reduce bank liquidity creation? Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 54(C).
    18. Pejman Abedifar & Philip Molyneux & Amine Tarazi, 2014. "Non-Interest Income Activities and Bank Lending," Working Papers hal-00947074, HAL.
    19. Saklain, Md Sohel & Williams, Barry, 2024. "Non-interest income and bank risk: The role of financial structure," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    20. Adesina, Kolade Sunday, 2021. "How diversification affects bank performance: The role of human capital," Economic Modelling, Elsevier, vol. 94(C), pages 303-319.

    More about this item

    Keywords

    income diversification; operating stability of bank; system generalized method of moments; non-interest income;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rjr:romjef:v::y:2018:i:3:p:29-41. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Corina Saman (email available below). General contact details of provider: https://edirc.repec.org/data/ipacaro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.