Reassessment of Diversification Effects in U.S. Bank Holding Companies: A Quantile Regression Approach

53 Pages Posted: 30 Oct 2015 Last revised: 5 Nov 2015

See all articles by Jinyong Kim

Jinyong Kim

KAIST College of Business

Yong-Cheol Kim

University of Wisconsin-Milwaukee

Date Written: October 1, 2015

Abstract

Heterogeneous patterns of the diversification effects are identified across the full distributions of various risk-adjusted performance measures and over time using a quantile regression of U.S. bank holding company data for the period 2000-2010. The net effect of income diversification is determined by a positive indirect effect from a diversified income structure and a negative direct effect from an increased share of non-interest income. The first main empirical finding shows a greater discount in the upper quantiles of the performance distributions. Second, the net diversification effect changes from a discount to a premium over time. These findings suggest that the diversification discount reflects a loss of comparative advantage at the early adjustment stage of income diversification. However, after the costly adjustment, the diversification benefit becomes dominant and the net effect becomes a diversification premium.

Keywords: diversification effects; bank holding companies; quantile regression

JEL Classification: G21

Suggested Citation

Kim, Jinyong and Kim, Yong-Cheol, Reassessment of Diversification Effects in U.S. Bank Holding Companies: A Quantile Regression Approach (October 1, 2015). KAIST College of Business Working Paper Series No. 2015-013, Available at SSRN: https://ssrn.com/abstract=2682864 or http://dx.doi.org/10.2139/ssrn.2682864

Jinyong Kim (Contact Author)

KAIST College of Business ( email )

Graduate School of Finance and Accounting
85 Hoegiro, Dongdaemoon-gu
Seoul, 130-722
Korea

Yong-Cheol Kim

University of Wisconsin-Milwaukee ( email )

School of Business Administration
P.O. Box 742
Milwaukee, WI 53201-0742
United States
414-229-4997 (Phone)
414-229-6957 (Fax)

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