The Role of Block Shareholders in the Relationship between Diversification and Bank Performance in Vietnam

PHAM Quoc Viet
International Journal of Economics and Business Administration, Volume VIII, Issue 4, 975-993, 2020
DOI: 10.35808/ijeba/644


Purpose: This paper examines the impact of diversification on bank performance and the role of block shareholders in this relationship. Design/Methodology/Approach: Dynamic GMM estimation is applied to test the research hypotheses on the sample of 21 Vietnamese commercial banks during the 2009-2018 period. Bank performance is measured by profitability and risks, whereas diversification is measured by income diversification, non-interest income diversification and non-interest income share. The presence of block shareholders is measured by ownership ratio and a dummy variable with 10% ownership threshold. Findings: Income diversification enhances bank performance, whereas non-interest income share has a reverse impact. State block shareholders help amplify the positive influence of diversification on bank performance, meanwhile the roles of foreign and private block shareholders remain ambiguous. Practical implications: Increased non-interest income share may adversely impact diversification. Vietnam should loosen the private and foreign ownership for banks so as to benefit more from diversification. Originality/Value: The paper contributes to the literature in three main ways. Firstly, it adds empirical evidence to the effects of diversification on bank performance in a transitional economy. Secondly, this paper provides evidence for the impact of block shareholders on the relationship between diversification and bank performance in the context of privatization and increasing presence of foreign investors. Thirdly, the article adds empirical evidence to the impact of other factors on bank performance after the 2007-2009 global financial crisis.

Cite Article (APA Style)