Loan portfolio diversification and bank returns: Do business models and market power matter?
| Autor: | Van Dan Dang, Japan Huynh |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2021 |
| Předmět: |
G28
Economics and Econometrics diversification Diversification (finance) Sample (statistics) Monetary economics Business model loan portfolios HB1-3840 0502 economics and business Economics ddc:330 Economic theory. Demography Market power G11 business models 050207 economics 050208 finance market power 05 social sciences Loan portfolio bank returns HG1-9999 G21 Nexus (standard) Finance |
| Zdroj: | Cogent Economics & Finance, Vol 9, Iss 1 (2021) |
| Popis: | The paper examines how loan portfolio diversification drives bank returns, mainly focusing on the conditioning roles of business models and market power in this nexus. We employ a sample of Vietnamese commercial banks from 2008 to 2019 to perform regressions in the dynamic panel models with the two-step system generalized method of moments (GMM) estimator. We find that increased sectoral loan portfolio diversification reduces bank returns, but not all banks are equally affected. Banks that adopted a business model towards non-interest activities are hurt less from loan portfolio diversification, and bank market power may mitigate the detrimental effects of loan portfolio diversification on bank returns. When such asymmetric effects are sizeable, neglecting them could miscalculate the choice of loan portfolio diversification. Our findings are robust to a rich set of bank return indicators and alternative loan portfolio diversification measures based on the Herfindahl-Hirschman (HHI)/Shannon Entropy (SE) indexes with different sectoral exposure profiles. Thus, both regulators and commercial banks should take the disadvantage of portfolio diversification into account when encouraging/pursuing a diversified strategy, which must be accompanied by the crucial caveat that the damage is most pronounced for banks with lower shares of non-interest income and less market power. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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