Arbeitspapier
Does diversification improve the performance of German banks? Evidence from individual bank loan portfolios
Should banks be diversified or focused? Does diversification indeed lead to enhanced performance and, therefore, greater safety for banks, as traditional portfolio and banking theory would suggest? This paper investigates the link between banks? profitability (ROA) and their portfolio diversification across different industries, broader economic sectors and geographical regions measured by the Herfindahl Index. To explore this issue, we use a unique data set of the individual bank loan portfolios of 983 German banks for the period from 1996 to 2002. The overall evidence we provide shows that there are no large performance benefits associated with diversification since each type of diversification tends to reduce the banks? returns. Moreover, we find that the impact of diversification depends strongly on the risk level. However, it is only for moderate risk levels and in the case of industrial diversification that diversification significantly improves the banks? returns.
- Sprache
-
Englisch
- Erschienen in
-
Series: Discussion Paper Series 2 ; No. 2006,05
- Klassifikation
-
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Thema
-
focus
diversification
monitoring
bank returns
bank risk
Bank
Kreditgeschäft
Diversifikation
Portfolio-Management
Deutschland
- Ereignis
-
Geistige Schöpfung
- (wer)
-
von Westernhagen, Natalja
Porath, Daniel
Hayden, Evelyn
- Ereignis
-
Veröffentlichung
- (wer)
-
Deutsche Bundesbank
- (wo)
-
Frankfurt a. M.
- (wann)
-
2006
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- von Westernhagen, Natalja
- Porath, Daniel
- Hayden, Evelyn
- Deutsche Bundesbank
Entstanden
- 2006
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