Does diversification affect the quality of loan portfolio?Panel Granger-causality evidence from US banks

Tran, Dung Viet and Ho, Sy-Hoa (2019): Does diversification affect the quality of loan portfolio?Panel Granger-causality evidence from US banks.

Abstract

This paper investigates the direction of causality between bank business model and the quality of loan portfolio using a large sample of US banks. We employ the panel causality testing approach, developed by Dumitrescu and Hurlin (2012), and new technique of optimal lag selection of Hans et al (2017). Empirical results show that there is evidence of two-way causality between diversification and non-performing loans.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank diversification, Non-performing loan, Panel Granger-causality
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance

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