Journal of

Marketing Development and Competitiveness

Scholar Gateway

Abstracts prior to volume 5(1) have been archived!

Issue 5(1), October 2010 -- Paper Abstracts

Girard  (p. 9-22)

Cooper (p. 23-32)

Kunz-Osborne (p. 33-41)

Coulmas-Law (p.42-46)

Stasio (p. 47-56)

Albert-Valette-Florence (p.57-63)

Zhang-Rauch (p. 64-70)

Alam-Yasin (p. 71-78)

Mattare-Monahan-Shah (p. 79-94)

Nonis-Hudson-Hunt (p. 95-106)

JOURNAL OF APPLIED BUSINESS AND ECONOMICS

Risk, Return, and Income Mix at Commercial Banks:

Cross-Country Evidence

Author(s): Rifat Gorener, Sungho Choi

Citation: Rifat Gorener, Sungho Choi, (2013) "Risk, Return, and Income Mix at Commercial Banks: Cross-Country Evidence," Journal of Applied Business and Economics, Vol. 14, Iss. 3, pp. 123-152

Article Type: Research paper

Publisher: North American Business Press

Abstract:

The paper examines whether and how increased reliance on non-interest income affects the financial

performance of banks, as measured by stock market return data for publicly traded commercial banking

companies in 42 countries. In general, we find that non-interest income is associated with riskier stock

returns at commercial banking companies, due primarily to increased market, or systematic, risk. This

finding is new to the literature, and suggests that fee-based banking activities increase banks’ exposure to

the business cycle. In contrast, we find almost no evidence linking non-interest income to changes in the

total risk, interest rate risk, or idiosyncratic risk. Our results also suggest that the stock markets

efficiently price the increased risk associated with the non-interest income market. That is, after

controlling for cross-sectional differences in risk, market returns do not fluctuate with the mix of bank

income. This result offers a potential explanation for the initial conventional wisdom among industry

participants that expansion into non-interest activities would result in an improved risk–return trade-off

at commercial banks. Finally, we find that cross-country differences in regulatory practices, economic

conditions, and social institutions influence our main results in important ways, but on average our risk–

return results appear to be robust across countries.