Journal
NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE
Volume 69, Issue -, Pages -Publisher
ELSEVIER SCIENCE INC
DOI: 10.1016/j.najef.2023.102000
Keywords
Banks Profitability Capital Equity Risk Revenue Diversification Business cycles
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This study examines the influence of revenue diversification on profitability, capital, and credit risk in US banks, and finds significant differences between different sized banks in terms of the impact of diversification measures on these factors.
This study examines the influence of US banks' revenue diversification on profitability, capital, and credit risk by size. By a simple decomposition of Return On Capital (ROC) I show how popular revenue diversification measures reflect both the ROC and risk-adjusted ROC. I find substantial differences between size groups concerning the impact of revenue diversification measures on: profitability, capital, and credit risk both in comparative statics and dynamically along the business cycles. Profitability, capital, and credit risk in medium size banks reflect insensitivity to these measures compared to other size groups; large and small alike. A similar 'smile' pattern has also been found regarding the respective pairwise conditional correlations between profitability, capital, and credit risk.
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