Bank Diversification Effects on Bank Performance and Risk Profile of Bank in Indonesia

Anthony Lukmawijaya, Sung Suk Kim

Abstract


We investigate the relationship of Indonesian bank diversification towards its long term performance and risk profile with Indonesian bank data from 2009 to 2013. Non-interest income to total operating income of the bank measures its bank diversification level. Bank value is measured by the adjusted Tobin's Q and risk profile which is broken down into total risk, idiosyncratic risk, and systematic risk. The result shows that bank non-interest income diversification has a positive influence on its franchise value. There is, however, no strong evidence that diversification can lower a bank's risk profile.

Keywords


bank diversification; bank performance; risk profile



DOI: http://dx.doi.org/10.19166/derema.v10i1.158

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Copyright (c) 2015 Anthony Lukmawijaya, Sung Suk Kim

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favicon Department of Management | Business School | Universitas Pelita Harapan | Indonesia | +62 21 546 0901 |  jurnal.derema@uph.edu