Investigating Bank Diversification on Valuation in the Iranian Stock Market: Guidelines for Agricultural Bank
Subject Areas : Agricultural Economics Research
mohammad kheiry
1
(Assistant Prof., Faculty of Economic and Management Payam Noor University, Tehran, Iran.)
Keywords: panel data, diversity, Bank, non-profit income,
Abstract :
Bank diversification is one of the important results of the globalization of the banking industry and the creation of competition in this industry. This paper empirically examines the impact of diversification on the valuation of banks in the Iranian stock market. Therefore, the relationship between banking diversification and valuation in the stock market with the data of accepted banks in Tehran Stock Exchange during the period of 2010-2016 is considered. In this paper, Tobin Q is used for the stock market valuation index and the share of non interest earnings for the Bank's diversification index. The results of data analysis using the data panel method show that banking diversification has a negative effect on the banks' valuation in the stock market; thus, the diversification of the bank due to entering of banks to new business, creates potential risks and reduces the bank's valuation in the stock market. Hence, the policy of diversification in the agricultural bank should be taken in such a way that it does not expose the agricultural bank to greater risk.
- Abbasiyan, A. Falahi, S. & Rahmani, A. (2016). The effect of diversification on the facility portfolio on banks' credit risk. Financial Research, 18: 149-166. (In Persian)
- Baele, L. Jonghe, O.D. & Venner, R. V. (2007). Does the stock market value bank diversification?. Journal of Banking and Finance, 31:1999-2023.
- Batten, J. & Vo, X.V. (2016). Bank risk shifting and diversification in an emerging market. Risk. Manage, 18 (4): 217–235 .
- Bebczuk, R. & Galindo, A. (2008). Financial crisis and sectoral diversification of Argentine banks. Applied Financial Economics, 18(3): 199- 211.
- Berger, A. Hasan, I. & Zhou, M. (2010). The Effects of Focus Versus Diversification on Bank Performance: Evidence from Chinesebanks. Journal of Banking & Finance, 34: 1417–1435.
- Chiorazzo, V. Milani, C. & Salvini, F. (2008). Income Diversification and Bank Performance: Evidence from Italian Banks. Journal of Financial Services Research, 33: 181–203.
- Deng, S. E. Elyasiani, E. & Mao, C.X. (2007). Diversification and the Cost of Debt of Bank Holding Companies. Journal of Banking& Finance, 31: 2453–2473.
- DeYoung, R. & Rice, T. (2004). Noninterest Income and Financial Performance at US Commercial Banks. The Financial Review, 39:101 – 127.
- DeYoung, R. & Roland, K. (2001). Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model. Journal of Financial Intermediation, 10: 54–84.
- Diamond, D. (1984). Financial Intermediation and Delegated Monitoring. Review of Economic Studies, 51: 393-414.
- Doumpos, M. Gaganis, C. & Pasiouras, F. (2016). Bank diversification and overall financial strength: international evidence. Financ. Markets Inst, 25 (3): 169–213 .
- Ebrahimi, K. Shahriyari, M. & Mehmannavazan, S. (2016). Investigating the effect of income diversity on the performance of banks accepted in the Tehran Stock Exchange. Financial knowledge analysis of securities ,30: 67-75. (In Persian)
- Elsas, R. Hackethal, A. & Holzhauser, M. (2010). The anatomy of bank diversification. Journal of Banking and Finance, 34: 1274–1287.
- Goddard, J. McKillop, D. & Wilson, J. (2008). The Diversification and Financial Performance of US Credit Unions. Journal of Banking & Finance, 32: 1836–1849.
- Lepetit, L. Nys, E. Rous, P. & Tarazi, A. (2008). Bank Income Structure and Risk- an Empirical Analysis of European Banks. Journalof Banking & Finance, 32: 1452–1467.
- Liang, H. Chen, I. & Chen, S. (2016). Does corporate governance mitigate bank diversification discount? Int. Rev. Econ. Finance, 45: 129–143 .
- Meslier, C. Tacneng, R. & Tarazi, A. (2014). Is bank income diversification benefical? Evidence from an emerging economy, Int. Fin.markets, Inst. and money 31: 97-126.
- Mirzaei, A. & Kutan, A.M. (2016). Does bank diversification improve output growth? Evidence from the recent global crisis. Int. Rev. Finance .16 (3): 467–481 .
- Moshiri A. & Karimi, M. (2008). Optimal management of assets and liabilities in banks using GP & AHP planning model (Case study: Entrepreneur Bank). Financial Research, 1: 89-114. (In Persian)
- Odesanmi, S. & Wolfe, S. (2007). Revenue diversification and insolvency risk:Evidence from banks in emerging economies. Available online at: www.cass.city.ac.uk.
- Pashaei Fam, R. & Keshavarziyan peyvasti, A. (2011). Monetary policies (instrumental-institutional) in line with the economic transformation plan. The 21st Conference on Monetary and Foreign Exchange Policies, 371-391. (In Persian):
- Pennathur, A.K. Subrahmanyam, V. & Vishwasrao, S. (2012). Income diversification and risk: does ownership matter? An empirical examination of indian banks. journal of banking & finance. 36: 2203-2215.
- Ramakrishnan, R. & Thakor, A. (1984).Information Reliability and a Theory of Financial Intermediation. The Review of Economic Studies, 51: 415-432.
- Rossi, S. P. Schwaiger, M. S. & Winkler, G. (2009). How loan portfolio diversification affects risk, efficiency and capitalization: A managerial behavior model for Austrian banks. Journal of Banking & Finance, 33(12): 2218- 2226.
- Sawada, M. (2013). How does the stock market value bank diversification? Empirical evidence from Japanese banks. Pacific basin finance journal , 25: 40-61.
- Shachera, M. & Jozjani, N. (2016). Diversity of income and profitability in the country's banking network. Quarterly Journal of Financial and Economic Policy, 14: 33-52. (In Persian)
- Turkmen, S.Y. & Yigit, I. (2012). Diversification in banking and its effect on bank’s performance evidence from Turkey. American International journal of contemporary Research, 12: 111-119.
- Vinh Vo, X. (2017). How does the stock market value bank diversification? Evidence from Vietnam. Finance Research Letters, 22:101–104.
_||_