Geographic Income Diversification of Large European Banks: Better or Worse?
European Financial Management, forthcoming. https://doi.org/10.1111/eufm.12461
42 Pages Posted: 12 Apr 2021 Last revised: 4 Nov 2023
Date Written: August 18, 2023
Abstract
This study examines the impact of geographic income diversification of large European banks on performance and risk‐taking by using unique data. By dividing the total operating income into three regions as the home country, the rest of Europe and the rest of the world, we find evidence that geographic income diversification reduces bank performance and increases risk‐taking. Particularly, shifting operations from home countries to other European countries or the rest of the world reduces bank performance and enhances risktaking unless the bank is highly concentrated in these areas. We also identify contributing channels, including the “follow‐the‐customer” hypothesis, new subsidiaries and board diversity, to explain the adverse effect.
Keywords: Geographic income diversification, European banking, bank performance, bank risk-taking, board diversity
JEL Classification: G21, G34
Suggested Citation: Suggested Citation