Relationship of Bank Diversification with Stock Market Value and Risk

Abstract

This paper empirically examines the effect of bank’s revenue diversification across the different activities on stock market value and risk measures using data on Pakistanis banking sector. This study uses market based measures of return potential and bank risk. We calculate Market to Book ratio over the time for Pakistanis Banks as measure for their Stock Market Value. In addition, we measure risk as both Systematic and idiosyncratic risk component drives from bank stock return model. Finally, we analyze relationship of Diversification with Stock Market Value and Risk by using panel data analysis over the period 2012-2021. We found that higher share of non-interest income in total income effect the stock market of bank positively. Study also found that revenue diversification of bank effect systematic and idiosyncratic risk negatively. Both risks cans be mitigating by revenue diversification. Furthermore , we find that revenue diversification effect bank value and risk significantly