Stock Market's Assessment of Bank Diversification: Evidence from Listed Public Banks in South Asian Countries

Abstract

Using data for four South Asian countries over a twelve-year period, we examine how the stock markets in these recently liberalised economies assess diversification attempts of listed public banks. We find that the income diversification has a significant positive association with market to book value and a significant negative association with return volatility. However, the relationship observed between diversification and markets’ assessment of value and risk is non-linear. Relative to listed banks operating in India, the relationship observed remains less pronounced for the banks operating in Bangladesh, Pakistan and Sri Lanka.

Keywords: South Asian Countries, Financial Deregulation, Stock Markets, Listed Public Banks, Bank Diversification

JEL Classification: G21, G15