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Determinants of income diversification: evidence from Chinese banks

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  • Xiangnan Meng
  • Tony Cavoli
  • Xin Deng

Abstract

This article presents an analysis of the determinants of Chinese commercial banks’ income diversification decisions. Using a panel dataset comprising 88 Chinese domestic banks from 2003 to 2010, we find that bank diversification reflects a variety of managerial abilities: insolvency risks, cost, capital position, asset scale and ownership structure. A larger ratio of banking assets to gross domestic product and lower interest spread lead to a higher level of diversification. Moreover, national banks and regional banks have different strategic responses to the macroeconomic, and indeed, regulatory environment. Resisting shocks from the banking sector and the macro economy, and supplementing liquidity shortages from intermediation business seem to be the driving forces of national banks to operate in non-banking sectors.

Suggested Citation

  • Xiangnan Meng & Tony Cavoli & Xin Deng, 2018. "Determinants of income diversification: evidence from Chinese banks," Applied Economics, Taylor & Francis Journals, vol. 50(17), pages 1934-1951, April.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:17:p:1934-1951
    DOI: 10.1080/00036846.2017.1383594
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    Cited by:

    1. Tang, Mengxuan & Hu, Yang & Corbet, Shaen & Hou, Yang (Greg) & Oxley, Les, 2024. "Fintech, bank diversification and liquidity: Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).
    2. Muhammad Farhan Basheer & Waeibrorheem Waemustafa & Mohamad Helmi Bin Hidthiir & Saira Ghulam Hassan, 2021. "Explaining the endogeneity between the credit risk, liquidity risk, and off-balance sheet activities in commercial banks: a case of South Asian economies," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 14(2), pages 166-187.

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