Drivers of income diversification in credit unions: Do size, resource, liquidity, and environment matter?

Abstract

This paper investigates income diversification in credit unions in Ghana. We make use of the random effect, Hausman–Taylor, and fractional regression to assess income diversification. We find empirical support that there exist differences between workplace credit union income diversification and other types of credit union. We also find that within nonfinancial income, size, liquidity, loan portfolio, net worth, and economic growth are important. For within liquid financial investment diversification, size, liquidity, resource usage, age, net interest margin, bank concentration, inflation, and economic growth matter. We recommend that with excess reserves, credit unions should pursue liquid financial investment.

Does Investment Structure Matters in the Nexus Between Income Diversification and Financial Performance in Comesa Region? Evidence from Commercial Banks in Kenya

“…The results for both fixed and random effect on the moderation shows the relationship between income diversification and financial performance of commercial banks in Kenya as presented in table IV. The study adopted fixed effects results that records bank size, age, loan portfolio quality and market share which were significant and positive to bank performance while financial lending strategy had negative effects but significant( ρ<0.05 ).The control variables confirms the existing relationship with depended variables as documented on previous studies .Bank size shows a positive (β=0.241, ρ<0.05) relationship with profitability to imply that bank with more assets tend to be profitable since having more assets reduces its administrative costs hence saving on cost (Cerasi & Daltung, 2000 ;Brighi,& Venturelli,2014;Amoah, et al,2021). Bank age shows a positive (β=0.304, ρ<0.05) relationship with profitability, as the bank grows over the years they tend to break, stabilize their operations, manage risk and increase customer base resulting profitability (Lin et al, 2014).This findings is contrary to Talavera et al (2018) who argued that bank age diversity have had negative impact on performance.…”

“…Fabozzi, et al (2002) documented the legacy of the theory by enumerating achievement on asset management and portfolio selection. In the previous studies that has confirmed the positive significant effects of income diversification on financial performances grounding their studies on this theory include; Chung et al (2013) Amoah et al (2021) and Mwangi( 2017).Equally the theory of financial intermediation posit that the indivisibilities of bank asset structure implies that the diversification increases the bank size that influences financial performance in the long run. (Diamond, 1984;Cerasi & Daltung, 2000).…”

“…who found that non-interest bank activities increases bank performances. As withNisar et al, 2018, the study believes that income diversification is beneficial since it increases the profitability and stability of the banks Amoah et al, (2021). also document that income diversifications drives…”

“…Moreover, mixed results are available given investment structures informs the forms of ownership the bank will have in relation to income diversification and financial performance linkage. For instance, there exists a positive (Vidyarthi, 2019;Amoah et al, 2021 andTariq et al, 2021), detrimental effects (Luu et al, 2019;Doan et al, 2018) and no significant relationship (Mittal & Nihar, 2018) between income diversification, investment structure and financial performance. Despite the valuable insights by researchers, there still exists a gap.…”

Income Diversification on Stability in Banking Industry A Systematic Literature Review

“…Several researchers have shown that income diversification carried out by banks can increase bank stability (Ashraf et al, 2016;Ghenimi et al, 2017;Hunjra et al, 2020;Moudud-Ul-Huq, 2019;Sissy et al, 2017;Wang & Lin, 2021). Meanwhile, other researchers show that there is no (irrelevant) effect of income diversification on bank stability (Abuzayed et al, 2018;Amoah et al, 2021;Ozili, 2018;Paltrinieri et al, 2020) even in some conditions, income diversification can reduce bank stability due to increased agency costs in banks ( Edirisuriya et al, 2015;Stiroh, 2004;Tran et al, 2020 ).…”