This study discusses the existence of the optimal diversification to maximize bank value. It finds that the impact of diversification on bank value depends on the business cycle. Since diversification can lower individual risk and raise system risk simultaneously, it will not always be beneficial for financial institutions to diversify their assets fully. This paper finds that, in a good economy, there will be an optimal
diversification to maximize a bank’s value, but in a bad economy, diversification will hurt a bank’s value. Empirical evidence from Taiwan’s banks is provided.
Relation:
2013 International Symposium on Business and Management (ISBM 2013), 21p.
