The effect of Lerner Index and income diversification on the general bank stability in Indonesia

This study contributes to the current debate on the downsides and benefits of revenue diversification. Diversification may affect banks when they invest in riskier activities with lower returns, while they benefit from diversified activities that are less risky but have higher returns. The study offers extended implications in the empirical literature using a different measure of revenue diversification from an emerging market perspective. The study uses recent financial data from 26 Malaysian and Nigerian banks for the period 2009–2017, totaling 234 observations. The GMM estimation technique is employed to test the relationship. The results show that revenue diversification – non-interest income/gross revenue ratio (NII), fee and commission income/revenue ratio (NII1), and non-interest income/total assets ratio (NIITA) – significantly affect the firm value and stability of Nigerian banks. Liquidity, administrative expenses, net interest margin (NIM), non-performing loans (NPL), size, GDP growth rate and inflation also affect the firm value and stability of a bank. For Malaysian banks, diversification variables do not significantly affect firm value of a bank, while liquidity, administrative expenses, NIM and size significantly affect firm value. Diversification (NII and NIITA), liquidity, administrative expenses, NIM, NPL, size, GDP growth and inflation rate has a significant impact on the stability of Malaysian banks. The study concludes that revenue diversification affects both the firm value and stability of banks, and to achieve sound financial stability, banks that focus on interest-generating activities may diversify into non-interest-generating activities.

There is no regulation in emerging markets, i.e. Indonesia imposing the gender diversity quota. Therefore, based on the different characteristics and attributes between developed and emerging markets, this study aims to analyze the impact of the boardroom’s gender diversity on the quality of accruals, i.e. earnings in big Indonesian firms. This study used a sample of 100 big manufacturing firms in Indonesia. Moreover, this paper utilized a widely used proxy for the quality of earnings and the boardroom’s gender diversity. Data panel with fixed effect method was used to compute the quality of accruals while path analysis was utilized for hypotheses testing. Furthermore, the results showed evidence that the boardroom’s gender diversity indirectly influenced the quality of accruals through cash flow variability. However, the presence of female directors is not a significant inducement for managers to report better quality of earnings. The managerial implication of this study is that the boardroom’s gender diversity is good for the emerging markets since it supports better accounting accruals indirectly. Future studies should incorporate many industries and consider the potential of endogeneity, which has not been tackled in this paper.

This study investigates the impact of the COVID-19 pandemic on the relationship between income diversification and bank stability among Jordanian commercial banks listed on the Amman Stock Exchange (ASE), using a panel Autoregressive Distributed-Lagged Model (panel-ARDL) and quarterly data from 2015 to 2021. The findings demonstrate that during the COVID-19 period, a higher proportion of non-interest income, resulting from income diversification, enhances bank stability. However, considering the entire sample period, the results suggest a potential deterioration in bank stability when banks diversify towards non-interest income, aligning with the negative effect observed in the literature. Additionally, the study identifies factors such as bank size, liquidity, loan loss provisions, cost efficiency, and the deposit ratio, which influence bank stability. These findings hold significant implications for policymakers and banks in developing countries concerned about the impact of income diversification on bank stability. They also offer valuable insights to understanding the dynamics of income diversification and its implications for bank stability in the context of the COVID-19 pandemic.