Revenue diversification and bank performance: evidence from Turkey

Abstract

Over the last three decades, the financial industry in developed as well as in developing countries has experienced major changes. One of these changes is revenue diversification on banking sector. The main purpose of our study is to examine the effects of income diversification on bank performance. Scope of Research is taken as the sample deposit banks operating in Turkey. Using the data of 14 banks between 2010 and 2017, variables were analyzed with dynamic panel data. Because of Herfindahl–Hirschman Index (will be addressed as HHI fore after) widely used to measure diversification, we used HHI for analyzing the revenue diversification.
In the model, the return on assets (ROA) was taken as the dependent
variable representing the bank performance, and the criterion of revenue diversification was HHI (Harfindal Hirsman Index) as the independent variable and other control variables were added. The panel GMM tecnique was used because of its some features. According to the results; there is a negative significiant relationship between HHI Index and bank performance. It means that revenue diversification has a positive effect on bank performance. Results of control variables are also largely consistent with expectations.