Impact of income diversification on bank stability: a cross-country analysis

Purpose The impact of diversification on bank stability and risk remains an ongoing topic discussion with inconclusive results. Hence, this study investigated the implications income within African markets. Design/methodology/approach utilised longitudinal financial data 45 countries from 2000 to 2017 employed static dynamic panel model estimation. Findings results suggest technique could improve throughout typical crisis periods which validate portfolio management theory. also confirms “too big fail” hypothesis, extensive diversifying over optimal range negatively impacts stability. Banks a high level liquidity, higher operating efficiency larger deposit ratio become more resilient. Banking capital regulations found be appropriate monitoring instrument for lowering risks maintaining However, profitability was have positive effect risk-taking. finding suggests that political institutions substantial, direct are positively related fragility. Macroeconomic factors such as gross domestic product (GDP) growth inflation influenced Practical This has important bankers, regulators academicians concerned about bank’s risk-taking or in developing economies. Originality/value To best author’s knowledge, is first Africa analyse quadratic influence effects