stiroh 2004 diversification of investments

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Stiroh 2004 diversification of investments best 3 month investment options

Stiroh 2004 diversification of investments

Generally speaking, a bank diversifies its revenues by operating both with traditional financial intermediation and non-traditional activities. Income from traditional financial intermediation is usually termed interest income, while non-traditionally generated income is termed noninterest income. The latter includes income from fees, commissions, and services in general.

This shift in the bank industry towards revenue diversification was made possible by legal changes, as the legislation previously in effect prevented the integration of different financial activities into the same institution De Jonghe, In general, there is the expectation that an increased share of noninterest income in a bank will decrease the volatility of its profits, since income from services and fees does not usually depend as much on the business environment as interest income does.

For example, the results of Demsetz and Strahan , and Stiroh cast some doubt on the potential of noninterest income to stabilize the profitability of banks and reduce their risks. However, these relationships still have not been examined for Brazilian banks. The Brazilian banking system has undergone drastic changes since the implementation of the Real Plan in In the period from to , according to De Paula and Marques , income from floating rate securities accounted for an average of However, with the implementation of the Real Plan, these gains fell to almost zero.

Since then, Brazilian banks began to seek revenue through credit expansion, fees, commissions, and other services. Their results suggest that increased noninterest income is positively related to bank efficiency in the BRICS.

In another interesting paper on the subject, Sanya and Wolfe studied bank revenue diversification for a group of 11 emerging nations including Brazil. Their results showed a positive relationship between revenue diversification and bank performance. Bank revenue diversification has become important for research of bank performance due to the increased use of this strategy in recent years.

De Paula and Marques , who studied banking consolidation in Brazil, found a growth trend in fees income in the Brazilian banking industry. Therefore, as with U. However, there is a lack of more up-to-date, in-depth research. Thus, the present paper aims to answer the following question: What is the impact of revenue diversification on the risk and return of Brazilian banks? De Jonghe points out that the banking industry deserves particular attention from regulatory agencies that seek to maintain the stability of the financial system.

Moreover, as Wolf highlights, banks are the foundation of any modern financial system, and in emerging countries they are almost the entire financial system. This chapter is divided as follows: i Portfolio and firm diversification theory and its impact on risk and return, ii deregulation of the international and Brazilian financial systems, and iii empirical evidence of the impact of banking revenue diversification on risk and return.

The literature about portfolio diversification and its impact on risk and return can be divided in studies dealing with asset portfolio diversification and studies about business activity diversification. This literature deals with selecting investment assets for a diversified portfolio where investors are risk-averse agents.

Before Markowitz , the most commonly used investment hypothesis suggested that investors should allocate all their resources in the asset with the highest expected discounted value. If more than one asset had the same expected value, then investing in any single one or a combination of them was believed to have the same effect.

If an investor chooses to invest in two assets with the same risk and return, then his portfolio profitability, which is achieved through both of them, will be a weighted return of its assets that is, it remains unchanged. However, if the assets are not perfectly correlated, then the risk for this portfolio will be lower than the individual assets.

In other words, the correlation between the assets in this portfolio would be very high, which does not bring the likely benefits of diversification. Thus, investors should seek to diversify their portfolios with assets that are not highly correlated with one another Markowitz, This would occur because noninterest income is supposedly not subject to as many risk factors as traditional interest income is.

Such evidence counters the portfolio theory and the risk aversion hypothesis. This point requires at least a brief introduction to the literature on business activity diversification. However, according to Denis, Denis, and Sarin , managers would have incentives to maintain a diversification strategy even when it reduced shareholder value.

This would occur because diversification can benefit managers with the power and prestige of managing a large company. The more the company grows, the greater the benefits for the managers. In addition to these approaches, there is a literature dealing with bank activity diversification.

This literature has been evolving to allow understanding the shift in the banking industry towards revenue diversification, as well as its impact on bank performance. First, however, financial systems deregulation will be touched on very briefly in the following section. As highlighted in the introduction, evidence shows that revenue diversification has been an increasing trend among banks around the world.

One important factor that may lead banks to adopt this strategy is the deregulation of the financial system. Wolf says that the liberalization or deregulation of financial systems has led financial institutions and regulators to a context that is almost entirely unknown even to developed countries such as Japan, the U. He regards financial deregulation as a fundamental problem that contributes to systemic financial crises. De Jonghe cites two important movements in the liberalization of the international financial system.

One such movement was the Second Banking Directive of , which allowed European banks to combine traditional financial intermediation activities with insurance and other financial services under the same institution. Another movement of financial deregulation occurred in the U. This legislation change removed barriers imposed by the Glass-Steagall Act of that impeded U.

These movements have also stimulated banking revenue diversification. In turn, the Brazilian financial system followed the deregulation movement that occurred in developed countries. An important event in the liberalization of the Brazilian banking system was the creation of the Multiple Bank on September 21, , through Resolution of the National Monetary Council. Until then, the same financial institution was not authorized to act in more than one of the following activities: commercial banks, investment banks, real estate credit companies, etc.

International and national banking deregulation allowed for greater diversity of financial activities under the same institution and, as a consequence, made possible a movement of banking consolidation. These changes are in line with the evidence cited at the beginning of this chapter regarding increased banking revenue diversification in Europe and the U. Our study makes it possible to compare these results with the Brazilian case.

In the case of the U. On the other hand, the studies focused on Canada and Europe show a clearer association between diversification and greater risks to banks but do not show the same consistency in terms of returns. Papers focusing on Asia and other countries generally show an association between banking revenue diversification and lower risk and higher returns.

The context and results of some of these studies are presented next. Stiroh studied U. However, this reduction occurred because of lower interest rate volatility and was not derived from the increase in the noninterest income share. Moreover, his results also suggested that noninterest income growth was much more volatile than interest income growth. Also, Stiroh , and Stiroh and Rumble , showed that noninterest activities had a similar return to the interest activities but presented more risk as measured by volatility of returns and beta.

Demsetz and Strahan showed that larger U. However, they also found that larger banks also tend to take more risks, operating with less own equity and focusing their loans on riskier sectors than smaller banks. Thus, according to the authors, banks use the benefits of revenue diversification to operate at higher risk in their search for higher returns. DeYoung and Roland found evidence of an increase in both return and profit volatility as U.

BHCs for the period from to Their results showed that banks could reduce their market risk by diversifying their activities. Lee, Hsieh, and Yang investigated the impact of banking revenue diversification on the performance of Asian banks during the period from to In another study concerning Asian banks, Lin, Chung, Hsieh and Wu analyzed the relationship between activity diversification and the interest margin of banks from nine Asian countries from to Their results showed that the most diversified banks had interest margins that were less volatile than those of specialized banks.

Sanya and Wolfe analyzed publicly held banks based in 11 emerging countries during the period from to Diversification of revenue sources presented a positive relation with risk adjusted return, and it also showed a reduction in the insolvency risk measured by Z Score.

Thus, Sanya and Wolfe found consistent evidence that the use of revenue diversification can create value for banks in emerging countries. Laeven and Levine analyzed the impact of activity diversification on the valuation of banks in 43 countries from to Their results indicated that banks focusing on less traditional activities presented a higher valuation than banks that focused on activities that are more traditional.

Several authors have focused on European banks. For example, Chiorazzo, Milani, and Salvini used a sample of 85 Italian banks between and and found a positive relationship between revenue diversification and risk adjusted return. However, large banks showed greater diversification benefits than small banks.

According to the authors, these differences can occur due to scale gains. De Jonghe analyzed the effects of activity diversification on risk for European banks by using accounting and market data from banks for the period from to Lepetit et al. Mercieca et al. Their results showed a negative relationship between the diversification and their risk adjusted return.

Thus, the authors suggested that small European banks could improve their performance by concentrating their activities on those areas in which their competitive advantage is greatest, rather than on diversification. Based on the theory and empirical results found in the literature, the hypotheses used in this study are presented next.

In general, the empirical evidence showed a positive relationship between bank revenue diversification and bank return. These results were found for bank samples from the U. Moreover, Lee et al. Thus, the first hypothesis of this study is as follows:. Wolf lists some typical and common characteristics among emerging economies that have significant impacts on their financial systems, including underdeveloped institutions, little experience in liberalized financial markets, and government inefficiency.

In this sense, it seems more appropriate to believe that Brazilian banks behave similarly to banks from other emerging countries. Thus, the second hypothesis of this study is:. The HHI was also used by Elsas et al. According to this approach, the revenue diversification degree is measured as follows:. The index will be equal to 0.

On the other hand, the index will be equal to 1 when the revenue is totally concentrated on one activity. Thus, this variable measures the level of revenue diversification between interest and noninterest income but does not specifically analyze the impact of each separate income. Since the direct impact of these revenue sources is also relevant to the purpose of this paper, the share of noninterest income is measured as follows:.

Stiroh and Rumble were two of the first authors to jointly use a diversification index and another variable to capture the noninterest income share. These authors suggested that these variables can capture, respectively, the indirect and direct effect of noninterest income. Net interest income is a compound of an income subgroup, and its impact on the performance of banks is also an interesting factor to be examined.

Net interest income is formed by income from loans, trading and other financial intermediation operations i. As earlier, we analyze the direct impact of the shares of different financial intermediation incomes. These variables are measured as follows:. The bank-specific and macroeconomic control variables are presented next. Its importance is based on the expectation that banks of different sizes will present different results. Moreover, according to Sanya and Wolfe , when entering a new market, larger banks tend to have greater diversification opportunities and less revenue volatility than the small banks.

CAPITAL : This variable is measured by the ratio between equity and assets and it is used as a proxy for the degree of risk aversion of a given financial institution Chiorazzo et al. It can also be considered a control variable for growth through acquisition Chiorazzo et al. In general, international articles do not control for interest rates or inflation due to the stability of prices in developed economies. However, Sanya and Wolfe did use variables to control for inflation, thus confirming their relevance for emerging economies.

Due to Z Score relevance in this literature, Lepetit and Strobel specifically studied this variable and its various measurement forms. The authors found that for samples in panel data, the most appropriate method of measuring this variable is:. In addition, this paper uses one risk adjusted return variable: RAR roa. The greater the ratio result, the greater the risk adjusted return. The model uses dynamic panel data GMM Generalized Method of Moments to address endogeneity, heteroscedasticity and autocorrelation problems.

Estimates were calculated using Eviews 7. The Central Bank of Brazil is the main source of the data used in this article. The sample consists of 1, observations for the period from to The income statement data are quarterly and were therefore combined for each year.

With regard to balance sheet data, we used the figures for December each year. It is worth highlighting that we organized data in unbalanced panels only because of the mergers and acquisitions in the period, not because of lack of information. The annual data for two banks with negative equity were excluded for two reasons: first, they distort the calculation of variables such as ROA.

Second, there are minimum capital requirements for banks, and banks with negative equity eventually leave the market as they come under intervention by the Central Bank or are acquired by other banks. Another important issue concerns the measurement of revenue diversification variables.

Using the diversification variable HHI REV requires using only positive incomes, since a negative income would cause this variable to have a result greater than one. This would indicate that the bank is specialized, when in fact it is a diversified bank. Other studies in the literature also faced this problem Mercieca et al.

Our solution here is the same as the one used by these authors, namely, to exclude data of banks with a negative income in any of the activities that form the diversification variable. Winsorization is commonly used in empirical studies to minimize the impact of extreme values in a sample. Table 1 summarizes the variables descriptive statistics. Source: Prepared by the author with Eviews 7.

As shown in the correlation matrix for the dependent variables in Table 2 , no combination of dependent variables showed a correlation above 0. This table presents the correlation matrix for all dependent variables used in the models. Firstly, Figure 1 shows the behavior of noninterest income in relation to the net operational revenue from to In line with Stiroh and Lepetit et al.

This suggests that bank revenue diversification also seems to be a trend for Brazilian banks, just as it is for financial institutions in other countries. Before estimating the econometric models, we tested them for unit root problems using the method of Levin, Lin and Chu , which provides a good indication. Phillips, and Stephen D.

DeLong, Gayle L. Demsetz, Rebecca S. DeYoung Robert, Lawrence G. DeYoung, Robert, and Iftekhar Hasan. DeYoung, Robert, and Karin P. Froot, Kenneth A. Scharfstein, and Jeremy C. Houston, Joel F. James, and Michael D. Bank Mergers from the Perspective of Insiders and Outsiders. Hughes, Joseph P. Mester, and Choon-Geol Moon. Jayaratne, Jith, and John Wolken. Kwan, Simon. Kwast, Myron.

Lown, Cara S. Osler, Philip E. Strahan, and Amir Sufi. Meyer, Andrew P. Milbourn, T. Boot, and A. Morgan, Donald P. Nakamura, Leonard I. Peek, Joe, and Eric S. Pilloff, Steven J. Rose, Peter S. Rosen, Richard J. Lloyd-Davies, Myron L. Kwast, and David B. Santomero, Anthony W. Saunders, Anthony, and Ingo Walters. What Could We Lose? Shaffer, Sherrill. Stiroh, Kevin J. Bank Holding Companies. Strahan, Philip E.

Templeton, William K. Zimmerman, Gary C. Download references. Reprints and Permissions. Stiroh, K.

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DeYoung and Roland found evidence of an increase in both return and profit volatility as U. BHCs for the period from to Their results showed that banks could reduce their market risk by diversifying their activities. Lee, Hsieh, and Yang investigated the impact of banking revenue diversification on the performance of Asian banks during the period from to In another study concerning Asian banks, Lin, Chung, Hsieh and Wu analyzed the relationship between activity diversification and the interest margin of banks from nine Asian countries from to Their results showed that the most diversified banks had interest margins that were less volatile than those of specialized banks.

Sanya and Wolfe analyzed publicly held banks based in 11 emerging countries during the period from to Diversification of revenue sources presented a positive relation with risk adjusted return, and it also showed a reduction in the insolvency risk measured by Z Score. Thus, Sanya and Wolfe found consistent evidence that the use of revenue diversification can create value for banks in emerging countries. Laeven and Levine analyzed the impact of activity diversification on the valuation of banks in 43 countries from to Their results indicated that banks focusing on less traditional activities presented a higher valuation than banks that focused on activities that are more traditional.

Several authors have focused on European banks. For example, Chiorazzo, Milani, and Salvini used a sample of 85 Italian banks between and and found a positive relationship between revenue diversification and risk adjusted return. However, large banks showed greater diversification benefits than small banks. According to the authors, these differences can occur due to scale gains.

De Jonghe analyzed the effects of activity diversification on risk for European banks by using accounting and market data from banks for the period from to Lepetit et al. Mercieca et al. Their results showed a negative relationship between the diversification and their risk adjusted return.

Thus, the authors suggested that small European banks could improve their performance by concentrating their activities on those areas in which their competitive advantage is greatest, rather than on diversification. Based on the theory and empirical results found in the literature, the hypotheses used in this study are presented next.

In general, the empirical evidence showed a positive relationship between bank revenue diversification and bank return. These results were found for bank samples from the U. Moreover, Lee et al. Thus, the first hypothesis of this study is as follows:. Wolf lists some typical and common characteristics among emerging economies that have significant impacts on their financial systems, including underdeveloped institutions, little experience in liberalized financial markets, and government inefficiency.

In this sense, it seems more appropriate to believe that Brazilian banks behave similarly to banks from other emerging countries. Thus, the second hypothesis of this study is:. The HHI was also used by Elsas et al. According to this approach, the revenue diversification degree is measured as follows:.

The index will be equal to 0. On the other hand, the index will be equal to 1 when the revenue is totally concentrated on one activity. Thus, this variable measures the level of revenue diversification between interest and noninterest income but does not specifically analyze the impact of each separate income.

Since the direct impact of these revenue sources is also relevant to the purpose of this paper, the share of noninterest income is measured as follows:. Stiroh and Rumble were two of the first authors to jointly use a diversification index and another variable to capture the noninterest income share. These authors suggested that these variables can capture, respectively, the indirect and direct effect of noninterest income.

Net interest income is a compound of an income subgroup, and its impact on the performance of banks is also an interesting factor to be examined. Net interest income is formed by income from loans, trading and other financial intermediation operations i. As earlier, we analyze the direct impact of the shares of different financial intermediation incomes. These variables are measured as follows:.

The bank-specific and macroeconomic control variables are presented next. Its importance is based on the expectation that banks of different sizes will present different results. Moreover, according to Sanya and Wolfe , when entering a new market, larger banks tend to have greater diversification opportunities and less revenue volatility than the small banks. CAPITAL : This variable is measured by the ratio between equity and assets and it is used as a proxy for the degree of risk aversion of a given financial institution Chiorazzo et al.

It can also be considered a control variable for growth through acquisition Chiorazzo et al. In general, international articles do not control for interest rates or inflation due to the stability of prices in developed economies. However, Sanya and Wolfe did use variables to control for inflation, thus confirming their relevance for emerging economies. Due to Z Score relevance in this literature, Lepetit and Strobel specifically studied this variable and its various measurement forms.

The authors found that for samples in panel data, the most appropriate method of measuring this variable is:. In addition, this paper uses one risk adjusted return variable: RAR roa. The greater the ratio result, the greater the risk adjusted return. The model uses dynamic panel data GMM Generalized Method of Moments to address endogeneity, heteroscedasticity and autocorrelation problems.

Estimates were calculated using Eviews 7. The Central Bank of Brazil is the main source of the data used in this article. The sample consists of 1, observations for the period from to The income statement data are quarterly and were therefore combined for each year. With regard to balance sheet data, we used the figures for December each year. It is worth highlighting that we organized data in unbalanced panels only because of the mergers and acquisitions in the period, not because of lack of information.

The annual data for two banks with negative equity were excluded for two reasons: first, they distort the calculation of variables such as ROA. Second, there are minimum capital requirements for banks, and banks with negative equity eventually leave the market as they come under intervention by the Central Bank or are acquired by other banks. Another important issue concerns the measurement of revenue diversification variables.

Using the diversification variable HHI REV requires using only positive incomes, since a negative income would cause this variable to have a result greater than one. This would indicate that the bank is specialized, when in fact it is a diversified bank. Other studies in the literature also faced this problem Mercieca et al. Our solution here is the same as the one used by these authors, namely, to exclude data of banks with a negative income in any of the activities that form the diversification variable.

Winsorization is commonly used in empirical studies to minimize the impact of extreme values in a sample. Table 1 summarizes the variables descriptive statistics. Source: Prepared by the author with Eviews 7. As shown in the correlation matrix for the dependent variables in Table 2 , no combination of dependent variables showed a correlation above 0.

This table presents the correlation matrix for all dependent variables used in the models. Firstly, Figure 1 shows the behavior of noninterest income in relation to the net operational revenue from to In line with Stiroh and Lepetit et al. This suggests that bank revenue diversification also seems to be a trend for Brazilian banks, just as it is for financial institutions in other countries. Before estimating the econometric models, we tested them for unit root problems using the method of Levin, Lin and Chu , which provides a good indication.

In addition, we conducted Kao and ADF panel cointegration tests for long-term equilibrium. In order to check for the presence of clusters in the sample, which could originate significant heterogeneity, thereby causing problems in the panel data regression, an orthogonal factor model was estimated. Results showed no indication of significant cluster existence, i. Firstly, the models were estimated through OLS Ordinary Least Squares , and we used the Hausman test to decide between fixed and random effects.

Then, we tested for the presence of autocorrelation and heteroscedasticity, and results showed that all models had these problems. The presence of autocorrelation, heteroscedasticity and endogeneity led the estimation process towards the use of GMM, with a second step, cross sectional data differences and fixed effects for the periods, and Instrumental Variables IV estimators as defined by Arellano and Bond We used the lag number that optimized the J-statistic, whose null hypothesis is that the model is correct.

This method generated estimations with correct instruments since all of them showed J-statistics p-values above 0. The results of the econometric models are presented below. In addition, GDP also showed relevant results. Therefore, these results confirm our expectation that the level of economic activity is related to more return and less insolvency risk for the banks analyzed. These results are in line with Lee et al. Tables 3 and 6 did not show the expected signs for SH NON , but these results are not statistically significant.

Moreover, results for SH NON are consistent about return and risk adjusted return, but they are not clear about risk. Our expectation was for a positive relationship between revenue diversification not specialization and return. However, further analysis of this result is necessary. Although these results do not confirm hypothesis 2, they are in line with many empirical studies such as those by Stiroh , Stiroh and Rumble , DeYoung and Roland , and Demsetz and Strahan Both results presented a high statistical significance.

It is noteworthy that while the banks that are more specialized in traditional intermediation loan are more profitable, they also take greater risks than the ones that diversify their financial intermediation with trading or other income sources. In general, banks with more diversified interest income sources, particularly with a greater share of trading activities, have lower returns than those whose interest income is concentrated on traditional loans.

These results are in line with those of DeYoung and Roland and Mercieca et al. Thus, having a growth strategy is related with a greater return for Brazilian banks, tough it is also related with a smaller risk adjusted return.

Some authors found similar results, such as Mercieca et al. This result suggests that banks with better capital levels have a greater capacity to reduce their bankruptcy risk. Our main results suggest that the banks that chose to specialize in noninterest income tended to increase their return and risk adjusted return.

As for banks that chose to specialize in interest income, our results suggest that traditional loan is positively related with a greater return and a smaller insolvency risk, while trading activities are related with a greater insolvency risk and a smaller return. The present study aimed to determine the impact of revenue diversification on the risk and return of Brazilian banks. Results were relevant and added new evidence to the literature on the subject, which is still incipient in Brazil.

Firstly, a simple glance at Figure 1 shows the relevance of this theme to Brazilian banks. In , noninterest income accounted for only However, by this share had increased to Thus, income diversification has been a strategy that is present in Brazilian banks as well as in foreign banks, as described by Stiroh for U.

Thus, results for HHI REV, which was found to be positively related to bank return, suggest that the concentration of income sources that would likely increase the banks' return would be on the noninterest share. The second hypothesis was not confirmed. SH NON showed a positive though not statistically relevant relationship with risk. While it does not confirm hypothesis 2, this result is in line with many empirical studies such as those by Stiroh , Stiroh , Stiroh and Rumble , DeYoung and Roland , and Demsetz and Strahan Both results presented statistical significance.

Therefore, in making a decision concerning interest income sources, results suggest that banks should choose loan activities rather than trading. The study of bank revenue diversification is a fertile field in the financial literature.

The following topics are suggestions for future research: i the impact of bank income diversification on Brazilian banks' spread; and ii the impact of bank income diversification for others emerging countries. Banco Central do Brasil. Arellano, M. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58 1 , Berger, P. Journal of Financial Economics, 37 1 , Bhargava, A. Identification and panel data models with endogenous regressors.

Review of Economic Studies , Financial structure change and banking income: A Canada-U. Chiorazzo, V. Income diversification and bank performance: Evidence from Italian banks. Journal of Financial Services Research, 33 3 , Davidson, R. Testing for consistency using artificial regressions. Econometric Theory, 5, Estimation and inference in econometrics. Oxford University Press.

De Jonghe, O. Back to the basics in banking? A micro-analysis of banking system stability. Journal of Financial Intermediation, 19 3 , De Paula, L. Demsetz, R. Journal of Money, Credit and Banking, 29 3 , Bank Mergers from the Perspective of Insiders and Outsiders.

Hughes, Joseph P. Mester, and Choon-Geol Moon. Jayaratne, Jith, and John Wolken. Kwan, Simon. Kwast, Myron. Lown, Cara S. Osler, Philip E. Strahan, and Amir Sufi. Meyer, Andrew P. Milbourn, T. Boot, and A. Morgan, Donald P. Nakamura, Leonard I. Peek, Joe, and Eric S. Pilloff, Steven J. Rose, Peter S. Rosen, Richard J. Lloyd-Davies, Myron L. Kwast, and David B. Santomero, Anthony W. Saunders, Anthony, and Ingo Walters. What Could We Lose? Shaffer, Sherrill. Stiroh, Kevin J.

Bank Holding Companies. Strahan, Philip E. Templeton, William K. Zimmerman, Gary C. Download references. Reprints and Permissions. Stiroh, K. Do Community Banks Benefit from Diversification?. Journal of Financial Services Research 25, — Download citation. Issue Date : April Search SpringerLink Search.

Do Community Banks Benefit from Diversification? Download PDF. Abstract This paper examines the link between diversification and risk-adjusted performance for small community banks. References Acharya, Viral V. Stiroh Authors Kevin J.

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Abstract This study examined the effect of income diversification on financial performance of deposit money banks DMBs in Nigeria. Variables considered were commission, foreign exchange incomes, and firm age, which are proxies for income diversification and financial performance proxied by Tobin's Q ratio. The purposive sampling technique was used to select the 8 banks classified by Central Bank of Nigeria to be Domestic Systematically Important Banks in Nigeria.

Data collected from the annual reports and the Nigerian Stock Exchange website for a period were used. Statistical tools used were the descriptive statistics and econometric analysis using the panel data. Findings showed that while commission income has a significant positive effect on Tobin's Q ratio of DMBs, foreign exchange income and firm age each have a significant negative effect on Tobin's Q ratio of DMBs in Nigeria. It is recommended that banks in Nigeria minimize their income from foreign exchange to maximize performance since income from these transactions tend to inhibit bank financial performance.

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Yam states that it is "…gratifying that so many of the tools that we have been able to rely on, including the apparatus and contingency arrangements for ensuring liquidity, have. The article that was written by Conley discusses the impact that collateralized debt obligations CDO's would have upon the subprime loans.

These were created in , by the Wall Street firm Drexel Burnham. In this product, the investment bankers would take a number of different articles and combine them together as one investment. The various assets that were used included: junk bonds, mortgages and other high yielding investments from. Every country depends on its economy for its growth. For a country to be stable it has to be stable in terms of its economy.

Bank and stock market contribute to a great extent to the economy growth of every country where it provides firms with opportunity to get funds. Read Full Essay. Sources Used in Documents:. Related Documents:. Financial Crisis Threat or Opportunity.