REVENUE DIVERSIFICATION AND INSOLVENCY RISK OF BRAZILIAN BANKS
DOI:
https://doi.org/10.11606/rco.v10i28.111758Keywords:
Diversification, Insolvency risk, Z-score, Herfindahl Hirschman index, Financial Institutions.Abstract
This study aim to investigate the relationship between revenue diversification and banks’ insolvency risk. We test the hypothesis that greater revenue diversification reduce insolvency risk. The sample was composed by financial institutions whose data referred to the period of 1997 to 2015. Using panel data models and the system GMM estimator, the results indicate that, in the period studied, banks’ revenue diversification has not influenced their insolvency risk. However, when analyzing the effect of diversification between publicly-traded banks and closely held banks, we have evidence that when publicly-traded banks diversify their operations, they reduced insolvency risk, what does not occur with closely held banks. Evidence indicates that profitability increases bank insolvency risk, while capitalization is negatively related to risk.
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