Abstract
The purpose of this research is to examine the influence of bank life cycle or bank maturity on income diversification (ID) and stability. In addition, this research investigates the ID relationship with bank stability. Drawing on the dynamic resource-based view and modern portfolio theory, this research examines the influence of a paramount internal factor i.e. bank life cycle or bank maturity on income diversification (ID) and stability consequence. Data were collected from the Pakistani’s commercial banks’ financial statements over the period 2005 to 2019. This research relied on the fixed effect and generalized method of moments (GMM) model to empirically test the proposed relationships. Core findings of the research reveal that bank maturity leads to enhanced ID and ID strongly influences the bank stability consequence, moreover, research findings are robust to use different measures of bank stability and GMM estimation techniques. To the authors’ best knowledge, this research is the first to report specific evidence about bank maturity as an internal driver of income diversification and stability and advances the literature seeking to understand the determinants of ID. This research also shows managers to recognize the importance of internal drivers to diversify effectively into non-interest income, and how such an effective ID translates into stability consequence.
Highlights
IntroductionThe banking sector is the mainstay of the financial system as it performs a vital intermediation role to mobilizes savings and an important lender to the different sectors of the economy
By drawing on the theoretical landscape of dynamic resource-based view and modern portfolio theory, this research considers the role of bank maturity as an antecedent of income diversification (ID) and bank stability and makes some unique contributions to ID and corporate life cycle literature
Consistent with the literature and based on the data collected from an emerging economies bank, this research used different measures of risk as a proxy for bank stability and run fixed effect and generalized method of moments (GMM) estimation model to empirically investigate the proposed relationships
Summary
The banking sector is the mainstay of the financial system as it performs a vital intermediation role to mobilizes savings and an important lender to the different sectors of the economy. The banking sector facilitates businesses to grow, as the banks are the main source of credit for small, medium, and large businesses in the emerging economies (Imran & Nishat, 2013) who may lack sufficeint funds for the growth. Due to the increasing importance of ID and its influence on bank stability, this research empirically examines the association between bank life cycle or bank maturity, income diversification, and stability consequence
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