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

See all articles by Caner Gerek

Caner Gerek

Kirklareli University

Ahmet M. Tuncez

University of Michigan at Dearborn - College of Business

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

Gerek, Caner and Tuncez, Ahmet M., Geographic Income Diversification of Large European Banks: Better or Worse? (August 18, 2023). European Financial Management, forthcoming. https://doi.org/10.1111/eufm.12461, Available at SSRN: https://ssrn.com/abstract=3824041 or http://dx.doi.org/10.2139/ssrn.3824041

Caner Gerek

Kirklareli University ( email )

Kofcaz yolu üzeri ana kampüs
İktisadi ve İdari Bilimler Fakültesi
Kirklareli, Kirklareli
Turkey

Ahmet M. Tuncez (Contact Author)

University of Michigan at Dearborn - College of Business ( email )

Fairlane Center South
19000 Hubbard Drive
Dearborn, MI 48126-2638
United States

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