Bank diversification, performance, and corporate governance: evidence from China. Issue 4 (3rd July 2020)

• Record Type: Journal Article
• Authors: Liang, Hsin-Yu; Kuo, Liang-wei; Chan, Kam C.; Chen, Sheng-Hung
• Is Part Of: Asia-Pacific journal of accounting & economics. Volume 27:Issue 4(2020)
• Page Start: 389
• Page End: 405
• Publication Date: 2020-07-03
• Subjects: Financial institutions -- corporate governance -- bank performance -- China; Accounting -- Periodicals; Accounting -- Pacific Area -- Periodicals; Economics -- Periodicals; Pacific Area -- Economic conditions -- Periodicals; 657
• DOI: 10.1080/16081625.2018.1452618
• Languages: English
• ISSNs: 1608-1625

Abstract

Abstract: This paper examines the merit of bank diversification using a sample of listed Chinese national banks during 2003–2012. We find that income source diversity positively affects profitability but negatively affects operating efficiency and market valuation. By exploiting an exogenous change in the regulatory attitude toward diversification in 2008, we find that the positive diversification-profitability relation before 2008 changes to negative afterwards; meanwhile, the diversification discount turns to premium. We conjecture that the source of discount captures changes in the diversification-induced agency costs. Finally, we find that governance matters as it enhances the positive diversification-profitability relation and mitigates diversification discount.