[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v94y2021icp303-319.html
   My bibliography  Save this article

How diversification affects bank performance: The role of human capital

Author

Listed:
  • Adesina, Kolade Sunday
Abstract
Previous studies have examined the effects of diversification on bank performance without taking into account the role of human capital. The aim of this paper is to make an attempt to investigate whether bank human capital efficiency has moderating effects on the relationships between diversification and bank performance. Using a sample of 400 commercial banks operating in 34 African countries over the 2005–2015 period, we find that higher diversification reduces bank performance while higher levels of human capital efficiency are positively associated with bank performance. We also find that the performance-reducing effects of diversification decrease as bank human capital efficiency improves. These results are consistent regardless of different alternative measures of diversification and performance. Our findings provide valuable insights into the importance of the development of human capital to the diversification of banking activities.

Suggested Citation

  • Adesina, Kolade Sunday, 2021. "How diversification affects bank performance: The role of human capital," Economic Modelling, Elsevier, vol. 94(C), pages 303-319.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:303-319
    DOI: 10.1016/j.econmod.2020.10.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999320312347
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2020.10.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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.
    2. Elyas Elyasiani & Yong Wang, 2012. "Bank holding company diversification and production efficiency," Applied Financial Economics, Taylor & Francis Journals, vol. 22(17), pages 1409-1428, September.
    3. 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.
    4. Stein, Jeremy C, 1997. "Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    5. 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.
    6. Nicholas Asare & Abdul Latif Alhassan & Michael Effah Asamoah & Matthew Ntow-Gyamfi, 2017. "Intellectual capital and profitability in an emerging insurance market," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 33(1), pages 2-19, May.
    7. De Jonghe, Olivier, 2010. "Back to the basics in banking? A micro-analysis of banking system stability," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 387-417, July.
    8. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.
    9. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2010. "The effects of focus versus diversification on bank performance: Evidence from Chinese banks," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1417-1435, July.
    10. Elsas, Ralf & Hackethal, Andreas & Holzhäuser, Markus, 2010. "The anatomy of bank diversification," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1274-1287, June.
    11. Bertay, Ata Can & Demirgüç-Kunt, Asli & Huizinga, Harry, 2015. "Bank ownership and credit over the business cycle: Is lending by state banks less procyclical?," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 326-339.
    12. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
    13. Demirgüç-Kunt, Asli & Huizinga, Harry, 2010. "Bank activity and funding strategies: The impact on risk and returns," Journal of Financial Economics, Elsevier, vol. 98(3), pages 626-650, December.
    14. Goddard, John & Molyneux, Phil & Wilson, John O S, 2004. "Dynamics of Growth and Profitability in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1069-1090, December.
    15. Rossi, Stefania P.S. & Schwaiger, Markus S. & Winkler, Gerhard, 2009. "How loan portfolio diversification affects risk, efficiency and capitalization: A managerial behavior model for Austrian banks," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2218-2226, December.
    16. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    17. 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.
    18. 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.
    19. 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.
    20. Căpraru, Bogdan & Ihnatov, Iulian & Pintilie, Nicoleta-Livia, 2020. "Competition and diversification in the European Banking Sector," Research in International Business and Finance, Elsevier, vol. 51(C).
    21. 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.
    22. Boot, Arnoud W. A. & Schmeits, Anjolein, 2000. "Market Discipline and Incentive Problems in Conglomerate Firms with Applications to Banking," Journal of Financial Intermediation, Elsevier, vol. 9(3), pages 240-273, July.
    23. Chen, Fu-Chiang & Liu, Z.-John & Kweh, Qian Long, 2014. "Intellectual capital and productivity of Malaysian general insurers," Economic Modelling, Elsevier, vol. 36(C), pages 413-420.
    24. Chen, Naiwei & Liang, Hsin-Yu & Yu, Min-Teh, 2018. "Asset diversification and bank performance: Evidence from three Asian countries with a dual banking system," Pacific-Basin Finance Journal, Elsevier, vol. 52(C), pages 40-53.
    25. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    26. Meles, Antonio & Porzio, Claudio & Sampagnaro, Gabriele & Verdoliva, Vincenzo, 2016. "The impact of the intellectual capital efficiency on commercial banks performance: Evidence from the US," Journal of Multinational Financial Management, Elsevier, vol. 36(C), pages 64-74.
    27. repec:zbw:bofitp:2010_004 is not listed on IDEAS
    28. Barth, James R. & Lin, Chen & Ma, Yue & Seade, Jesús & Song, Frank M., 2013. "Do bank regulation, supervision and monitoring enhance or impede bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2879-2892.
    29. García-Kuhnert, Yamileh & Marchica, Maria-Teresa & Mura, Roberto, 2015. "Shareholder diversification and bank risk-taking," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 602-635.
    30. Lin, Kun-Li & Doan, Anh Tuan & Doong, Shuh-Chyi, 2016. "Changes in ownership structure and bank efficiency in Asian developing countries: The role of financial freedom," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 19-34.
    31. 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.
    32. Doan, Anh-Tuan & Lin, Kun-Li & Doong, Shuh-Chyi, 2018. "What drives bank efficiency? The interaction of bank income diversification and ownership," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 203-219.
    33. Adesina, Kolade Sunday, 2019. "Bank technical, allocative and cost efficiencies in Africa: The influence of intellectual capital," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 419-433.
    34. Francis, Bill B. & Hasan, Iftekhar & Küllü, A. Melih & Zhou, Mingming, 2018. "Should banks diversify or focus? Know thyself: The role of abilities," Economic Systems, Elsevier, vol. 42(1), pages 106-118.
    35. Mercieca, Steve & Schaeck, Klaus & Wolfe, Simon, 2007. "Small European banks: Benefits from diversification?," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1975-1998, July.
    36. Mostak Ahamed, M., 2017. "Asset quality, non-interest income, and bank profitability: Evidence from Indian banks," Economic Modelling, Elsevier, vol. 63(C), pages 1-14.
    37. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    38. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633, September.
    39. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    40. Chortareas, Georgios E. & Girardone, Claudia & Ventouri, Alexia, 2012. "Bank supervision, regulation, and efficiency: Evidence from the European Union," Journal of Financial Stability, Elsevier, vol. 8(4), pages 292-302.
    41. Lee, Chien-Chiang & Hsieh, Meng-Fen & Yang, Shih-Jui, 2014. "The relationship between revenue diversification and bank performance: Do financial structures and financial reforms matter?," Japan and the World Economy, Elsevier, vol. 29(C), pages 18-35.
    42. Chiaramonte, Laura & Casu, Barbara, 2017. "Capital and liquidity ratios and financial distress. Evidence from the European banking industry," The British Accounting Review, Elsevier, vol. 49(2), pages 138-161.
    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. Shabir, Mohsin & Jiang, Ping & Shahab, Yasir & Wang, Wenhao & Işık, Özcan & Mehroush, Iqra, 2024. "Diversification and bank stability: Role of political instability and climate risk," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 63-92.
    2. Md. Mominur Rahman & Bilkis Akhter, 2021. "The impact of investment in human capital on bank performance: evidence from Bangladesh," Future Business Journal, Springer, vol. 7(1), pages 1-13, December.
    3. Shabir, Mohsin & Jiang, Ping & Wang, Wenhao & Işık, Özcan, 2023. "COVID-19 pandemic impact on banking sector: A cross-country analysis," Journal of Multinational Financial Management, Elsevier, vol. 67(C).
    4. Christian Haddad & Lars Hornuf, 2021. "The Impact of Fintech Startups on Financial Institutions' Performance and Default Risk," CESifo Working Paper Series 9050, CESifo.
    5. S. M. Shamsul Alam & Mohammad Abdul Matin Chowdhury & Dzuljastri Bin Abdul Razak, 2021. "Research evolution in banking performance: a bibliometric analysis," Future Business Journal, Springer, vol. 7(1), pages 1-19, December.
    6. Umar, Muhammad & Mirza, Nawazish & Hasnaoui, Jamila Abaidi & Rochoń, Małgorzata Porada, 2022. "The nexus of carbon emissions, oil price volatility, and human capital efficiency," Resources Policy, Elsevier, vol. 78(C).
    7. Chen, Yang & Cheng, Liang & Lee, Chien-Chiang & Wang, Chang-song, 2021. "The impact of regional banks on environmental pollution: Evidence from China's city commercial banks," Energy Economics, Elsevier, vol. 102(C).
    8. Shasnil Avinesh Chand & Ronald Ravinesh Kumar & Peter Josef Stauvermann & Muhammad Shahbaz, 2024. "Determinants of Bank Profitability—Do Institutions, Globalization, and Global Uncertainty Matter for Banks in Island Economies? The Case of Fiji," JRFM, MDPI, vol. 17(6), pages 1-26, May.
    9. Thuy Thu Nguyen & Hai Hong Ho & Duy Van Nguyen & Anh Cam Pham & Trang Thu Nguyen, 2021. "The Effects of Business Model on Bank’s Stability," IJFS, MDPI, vol. 9(3), pages 1-12, August.
    10. Mirza, Nawazish & Umar, Muhammad & Afzal, Ayesha & Firdousi, Saba Fazal, 2023. "The role of fintech in promoting green finance, and profitability: Evidence from the banking sector in the euro zone," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 33-40.
    11. Ochenge, Rogers, 2022. "The effect of revenue diversification on bank profitability and stability during the COVID-19 Pandemic: Evidence from Kenya," KBA Centre for Research on Financial Markets and Policy Working Paper Series 59, Kenya Bankers Association (KBA).
    12. Cuadros-Solas, Pedro J. & Cubillas, Elena & Salvador, Carlos, 2023. "Does alternative digital lending affect bank performance? Cross-country and bank-level evidence," International Review of Financial Analysis, Elsevier, vol. 90(C).
    13. Dmitry A. Ruban & Natalia N. Yashalova, 2021. "Lost in Missions? Employees as a Top Strategic Priority of the World’s Biggest Banks," JRFM, MDPI, vol. 14(2), pages 1-11, January.
    14. Adesina, Kolade Sunday & Semenova, Maria, 2024. "Do non-interest income activities matter for banking sector efficiency? A net interest margin perspective," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 73, pages 59-77.
    15. Mengting Fan & Zan Mo & Huijian Fu & Tsung-Hsien Wu & Zili Chen & Yue He, 2024. "Does climate policy uncertainty matter for bank value?," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-28, April.

    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. 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.
    2. Shabir, Mohsin & Jiang, Ping & Shahab, Yasir & Wang, Wenhao & Işık, Özcan & Mehroush, Iqra, 2024. "Diversification and bank stability: Role of political instability and climate risk," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 63-92.
    3. 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.
    4. Francis, Bill B. & Hasan, Iftekhar & Küllü, A. Melih & Zhou, Mingming, 2018. "Should banks diversify or focus? Know thyself: The role of abilities," Economic Systems, Elsevier, vol. 42(1), pages 106-118.
    5. Šeho, Mirzet & Ibrahim, Mansor H. & Mirakhor, Abbas, 2021. "Does sectoral diversification of loans and financing improve bank returns and risk in dual-banking systems?," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    6. Khanh Ngoc Nguyen, 2019. "Revenue Diversification, Risk and Bank Performance of Vietnamese Commercial Banks," JRFM, MDPI, vol. 12(3), pages 1-21, August.
    7. 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).
    8. 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.
    9. Faisal Abbas & Shoaib Ali, 2022. "Dynamics of diversification and banks' risk‐taking and stability: Empirical analysis of commercial banks," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1000-1014, June.
    10. 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.
    11. Laura Baselga-Pascual & Olga Del Orden-Olasagasti & Antonio Trujillo-Ponce, 2018. "Toward a More Resilient Financial System: Should Banks Be Diversified?," Sustainability, MDPI, vol. 10(6), pages 1-16, June.
    12. Shoaib Nisar & Ke Peng & Susheng Wang & Badar Nadeem Ashraf, 2018. "The Impact of Revenue Diversification on Bank Profitability and Stability: Empirical Evidence from South Asian Countries," IJFS, MDPI, vol. 6(2), pages 1-25, April.
    13. Zamore, Stephen, 2018. "Should microfinance institutions diversify or focus? A global analysis," Research in International Business and Finance, Elsevier, vol. 46(C), pages 105-119.
    14. Harimaya, Kozo & Ozaki, Yasufumi, 2021. "Effects of diversification on bank efficiency: Evidence from Shinkin banks in Japan," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 700-717.
    15. Paola Brighi & Valeria Venturelli, 2013. "The Effect Of Revenue And Geographic Diversification On Bank Performance," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0043, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    16. 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.
    17. Jouida, Sameh & Bouzgarrou, Houssam & Hellara, Slaheddine, 2017. "The effects of activity and geographic diversification on performance: Evidence from French financial institutions," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 920-939.
    18. 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.
    19. Paola Brighi & Valeria Venturelli, 2013. "How Income Diversification, Size and Capital Ratio Affect BHC’s Performance?," Department of Economics (DEMB) 0025, University of Modena and Reggio Emilia, Department of Economics "Marco Biagi".
    20. Schreiber, Ben Z., 2024. "The impact of revenue diversification on profitability, capital, and risk in US banks by size," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).

    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:eee:ecmode:v:94:y:2021:i:c:p:303-319. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    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.