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Doddy Ariefianto and Irwan Trinugroho
''Bank risk, business diversification, systemic designation and bank valuation''
( 2022, Vol. 42 No.2 )
We study the relationship between bank value and bank risk (credit and liquidity risks), business diversification, and systemic designation using a multilevel econometric technique applied on a panel annual data comprising 576 commercial banks from 75 countries during the 2014–2019 period. This technique is employed to cope with inference issues because of nested data structure and to obtain generalizable insights from the heterogeneity pattern. We find that better credit and liquidity risk measures positively affect bank value. Nevertheless, both risk measures vary significantly from the second level (country) effect. Lastly, we find that systemic designation adversely affects bank value—a piece of evidence of possible weaning off “too big to fail” perception among investors.
Keywords: Bank Risk, Business Diversification, Market Valuation, Systemic Designation and Multilevel Econometric
JEL: G2 - Financial Institutions and Services: General
G3 - Corporate Finance and Governance: General
Manuscript Received : Apr 05 2022 Manuscript Accepted : Jun 30 2022

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