@techreport{vonWesternhagen2006Does,
abstract = {Should banks be diversified or focused? Does diversification indeed lead to enhanced performance
and, therefore, greater safety for banks, as traditional portfolio and banking theory would suggest?
This paper investigates the link between banks? profitability (ROA) and their portfolio diversification
across different industries, broader economic sectors and geographical regions measured by the
Herfindahl Index. To explore this issue, we use a unique data set of the individual bank loan portfolios
of 983 German banks for the period from 1996 to 2002. The overall evidence we provide shows that
there are no large performance benefits associated with diversification since each type of
diversification tends to reduce the banks? returns. Moreover, we find that the impact of diversification
depends strongly on the risk level. However, it is only for moderate risk levels and in the case of
industrial diversification that diversification significantly improves the banks? returns.},
author = {Natalja von Westernhagen and Daniel Porath and Evelyn Hayden},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {G21; G28; G32; 330; focus; diversification; monitoring; bank returns; bank risk; Bank; Kreditgesch\"{a}ft; Diversifikation; Portfolio-Management; Deutschland},
language = {eng},
number = {2006,05},
title = {Does diversification improve the performance of German banks? Evidence from individual bank loan portfolios},
type = {Discussion Paper, Series 2: Banking and Financial Supervision},
url = {http://hdl.handle.net/10419/19752},
year = {2006}
}
