c عنوان انگلیسی مقاله:

How functional and geographic diversification affect bank profitability during the crisis

ترجمه عنوان مقاله: تفاوت مناطق جغرافیایی و وظیفه ای چه تاثیری بر سوددهی بانک در شرایط بحران دارند

رشته: علوم بانکی

سال انتشار: 2015

تعداد صفحات مقاله انگلیسی: 10 صفحه

منبع: الزویر و ساینس دایرکت

نوع فایل: pdf

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چکیده مقاله

Using bank-level data on 491 Italian banks over the period 2006– 2012, we investigate the impact of functional and geographic diversification on bank performance during 2008’s financial and 2010’s sovereign debt crises. Both scenarios negatively affect bank profitability while discordant effects emerge in case of the Z-Score analysis. Italian banks’ risk stays unaffected by the 2008’s episode, while the sovereign debt crisis increases such risk. Results differ for the sample of mutual and not-mutual banks being the different banking groups characterized by different size and business models.

Keywords: Financial crisis, Bank heterogeneity, Diversification, Geography, Panel data

مقدمه مقاله

On what activities should banks focus on? Deregulating initiatives, which took place both in Europe and in the U.S. during the last decades, have resulted in an expansion of the scope of bank activities and a shift from traditional to non-traditional sources of income. At the same time, banks became wider spreading their operations across many geographical markets. The implications of such changes on bank performance have been broadly addressed in the literature, but no consensus has been reached at this stage.

Theoretically, the literature on bank diversification has analyzed the benefits and costs associated with the type of strategy developed. The positive effects of the revenue diversification strategy are usually associated with the exploitation of economies of scope due to the joint production of a wide range of financial services (Teece, 1982) and the cross-selling of various (fee-based) financial products alongside traditional lending-based services (Herring and Santomero, 1990) with the reduction of information asymmetry (Diamond, 1984; Stein, 2002), the lessening of agency costs of managerial discretion (Stulz, 1990)and the creation of an internal capital markets (Stein, 2002). Alongside the positive effects, adverse implications on performance have been identified (Mazur and Zhang, 2015 ). Diversification on the one hand can intensify agency problems between corporate insiders and small shareholders (Stulz, 1990), while on the other, increasing the size and scope of a bank’s activities introduces the “cost of complexity”, which at some point may dominate the benefits that can be achieved (Rajan et al., 2000). As for geographical diversification in banking, the literature suggests that geographic diversity will enhance efficiency (Bergeret al., 1999), spread idiosyncratic risk (Diamond, 1984), and reduce agency costs, boosting corporate valuations. Conversely, theories of corporate governance by Jensen and Meckling (1976) suggest that if small shareholders find it difficult to monitor and govern geographically dispersed corporations then corporate insiders will have greater a propensity to extract private benefits from geographically diversified firms with adverse effects on firm valuations. Moreover, when a bank expands geographically it can generate higher risks to the extent that the incumbent intermediaries abandon the riskiest and least profitable customers (Salas and Saurina, 2002) while the increasing distance between branches and headquarters can heighten distance-related agency conflicts and harm firm value ( Deng and Elyasiani, 200).