Record Details

Diversification and Community Bank Performance during a Financial Crisis

International Journal of Finance & Banking Studies

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Field Value
 
Title Diversification and Community Bank Performance during a Financial Crisis
 
Creator Estes, Kathy; Bryan College
 
Subject Banking
Diversification; Crisis; Community Banks; Risk-adjusted Performance
 
Description Many U.S. banks failed or performed poorly during the recent financial crisis.  Although the costliest failures were large institutions, the majority of failures were community banks (less than $1 billion in total assets).  Community banks, which are considered instrumental in small business lending and employment growth, face different risks and challenges than their larger counterparts, including a lack of economies of scale and scope and exclusion from “too-big-to-fail” status.  These challenges, coupled with the recent failures, motivate research into potential strategies managers can use to improve performance.  This study examined the relationship between three potential diversification strategies and community bank risk-adjusted performance from 2007 to 2011.  Understanding these relationships could improve management’s decision-making, allowing them to choose risk-mitigating strategies during a severe economic downturn.  Herfindahl-Hirschman Indexes (HHIs) were calculated as proxies for geographic, activity, and asset diversification.  Multiple regression models for each of the five years were used to calculate the impact of diversification variables on risk-adjusted ROA.  The results show that diversification in all areas is directly related to performance; however, only the asset diversification relationship is significant.  To the extent possible for community banks, diversification may improve risk-adjusted performance.
 
Publisher SSBFNET
 
Contributor —
 
Date 2014-11-03
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.ssbfnet.com/ojs/index.php/ijfbs/article/view/350
 
Source International Journal of Finance & Banking Studies (ISSN: 2147- 4486); Vol 3, No 4 (2014): October; 1-40
2147-4486
 
Language eng
 
Relation http://www.ssbfnet.com/ojs/index.php/ijfbs/article/view/350/287