Management Review

›› 2016, Vol. 28 ›› Issue (5): 3-12.

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The Effect of Diversification on Commercial Banks' Performance: A Comparison between China's and Foreign Commercial Banks

Shang Yan1,2, Duan Zhonghui3, Li Bin3, Wang Shouyang1,4   

  1. 1. School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190;
    2. Post-Doctoral Research Center, Industrial and Commercial Bank of China, Beijing 100032;
    3. Bank of China, Beijing 100818;
    4. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190
  • Received:2014-10-18 Online:2016-05-28 Published:2016-06-02

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Abstract:

This paper studies the effects of diversification on commercial banks' long-term performance and short-term performance. By analyzing income-based diversification and asset-based diversification separately, we find that the effect of diversification on the China's commercial banks is significantly different from that on the foreign commercial banks. The main results show that: (1) Nontraditional activities improve both the long-term performance and short-term performance of foreign commercial banks significantly; (2) Diversification could affect China's large-scale commercial banks' performance positively, but has negative effects on China's small-scale commercial banks' development; (3) A higher share of non-interest income in total income improves China's listed commercial banks' short-term performance greater than foreign commercial banks'. These findings provide a theoretical basis about the development mode for different types of China's commercial banks during the financial reform periods.

Key words: commercial bank, diversification, long-term performance, short-term performance