The Effect of Corporate Diversification on the Profitability of the Financial Services Sector in Nigeria
This paper examines the effect of corporate diversification on the profitability of the Financial services sector in Nigeria. The study relied on historic accounting data generated from financial (annual) reports and accounts of sampled banks between the period 1998 and 2007 (a ten-year period). A regression equation was formulated, in line with previous studies to shed light on the effect of corporate diversification on the profitability of the Financial services sector in Nigeria. The results of the regression analysis revealed that diversification impacts strongly on banks profitability. Conclusively the paper produces strong evidence to assert that diversification impacts positively and significantly on banks profitability because among other things such diversified banks can pool their internally generated funds and allocate them properly.
[1] J.Boyd, and E Prescott. (1986): "Financial Intermediary Coalitions",
Journal of Economic Theory 38, 211 - 232.
[2] V. V.,Acharya, C. I.Hasan, and A.Saunders (2004): "Should Banks be
Diversified? Evidence from Individual Bank Loan Portfolios? London:
Journal of Business School.
[3] P. L. Bernstein (1996): Against the Gods: The Remarkable Story of
Risk, New York: Wiley and Sons.
[4] Winton, (1999): Don-t Put All Yours Eggs in One Basket?
Diversification and Specialization in Lending, Working Paper,
University of Minnesota.
[5] A. Berger, R. Demsetz and P. Strahan (1999): "The Consolidation of the
Financial Service Industry: Causes, Consequences, and Implications for
the Future"; Working Paper, Board of Governors of the Federal Res.
System.
[6] V. K. V. Lins and , H. Serveas (Summer, 2002): "Is Corporate
Diversification Beneficial in Emerging Markets? Finance Management,
Vol. 31, 5 - 31 Issue 2.
[7] A.Banal-Estanol and M.Ottaviani(2006): "Bank Merger and
Diversification; Implications for Competition Policy" Website.
[8] J. P.Hughes and , L. J.Mester (1995): "Bank Capitalization and Cost
Evidence of Scale Economies in Risk Management and Signaling",
Review of Economics and Statistics, Vol. 80.
[9] R. S Demsetz, and , P. E. Strahan (1997); "Diversification Size, Risk at
Bank Holding Companies", Journal of Money, Credit and Banking, Vol.
29.
[10] S. J.Pilloff (1996): "Performance Changes and Shareholder Wealth
Creation Associated with Mergers of Publicly Traded Banking
Institutions", Journal of Money, Credit and Banking 28, 294 - 310.
[11] J. F. Houston, C. M. James, and M. D. Ryngaert (2001) ÔÇÿWher do
Merger Games Come frm: bank Mergers from the perspectiveof Insiders
and Outsiders", Journal of Fianacial Economics 60,285-331.
[12] M. F Penas. and H. Unal (2004): "Gains in Bank Mergers: Evidence
from the Bond Markets," Journal of Financial Economics 74, 149 - 179.
[13] C. C. Soludo (June 6, 2004): "Consolidating the Nigerian Banking
Industry to Meet the development Challenges of the 21st Century".
Being An Address Delivered to the SpecialMeeting of the Bankers-
Committee, Abuja: CBN Headquarter.
[14] G. L. Delong (1999): "Stockholders Gains from Focusing Versus
Diversifying BankMergers", Journal of Economics 59 (2) 221 - 252.
[15] J. U. J.Onwumere (2009): Business and Economic Research Methods,
2nd Edtion, Enugu, Vougasen Limited.
[16] Y.Yamane (1964) Statistics: An Introductory Analysis, New York:
Hamper & Row Publishers.
[17] E. G.Barbosa and C. C. Moraes (2003): "Determinants of Capital
Structure - the Case of the very small Enterprises" EconWPA, Finance
Series 0302001.
[18] A Ezeoha. (2008): "The Impact of Major Firm Characteristics on the
Financial Leverage of Quoted Companies in Nigeria". An Unpublished
Ph.D Thesis. Dept of Banking and Finance, UNEC.
[19] M. Anyanwaokoro (1996): Banking Methods and Processes, Enugu:
Hosanna Publications.
[20] M. Pandey (2004): "Capital Structure, Profitability and Market
Structure: Evidence fromMalaysia" Asia Pacific", Journal of Economics
and Business, 8(2)
[21] M. J.Barclay and C. W Smith Jr. (1995): "The Priority Structure of
Corporate Liabilities", The Journal of Finance, Vol. 50, No. 3, 899 -
917.
[22] R.Morck, A Shleifer,. and , R. W Vishny. (1988): "Management
Ownership and Market Valuation: An Empirical Analysis," Journal of
Financial Economics 20, 293 - 315.
[23] J. J.Wild., K. R Subramanyam and R. F Halsey. (2004): Financial
Statement Analysis,8th Ed. New York, McGraw Hill.
[24] J. C.Stein (1997): "Internal Capital Markets and the Competition for
Corporate Resources," Journal of Finance 52, 111 - 133.
[25] D. J Teece. (1990) "Economics of Scope and the Scope of the
Enterprise", Journal of Economic Behaviour and Organization 1, 223 -
247.
[1] J.Boyd, and E Prescott. (1986): "Financial Intermediary Coalitions",
Journal of Economic Theory 38, 211 - 232.
[2] V. V.,Acharya, C. I.Hasan, and A.Saunders (2004): "Should Banks be
Diversified? Evidence from Individual Bank Loan Portfolios? London:
Journal of Business School.
[3] P. L. Bernstein (1996): Against the Gods: The Remarkable Story of
Risk, New York: Wiley and Sons.
[4] Winton, (1999): Don-t Put All Yours Eggs in One Basket?
Diversification and Specialization in Lending, Working Paper,
University of Minnesota.
[5] A. Berger, R. Demsetz and P. Strahan (1999): "The Consolidation of the
Financial Service Industry: Causes, Consequences, and Implications for
the Future"; Working Paper, Board of Governors of the Federal Res.
System.
[6] V. K. V. Lins and , H. Serveas (Summer, 2002): "Is Corporate
Diversification Beneficial in Emerging Markets? Finance Management,
Vol. 31, 5 - 31 Issue 2.
[7] A.Banal-Estanol and M.Ottaviani(2006): "Bank Merger and
Diversification; Implications for Competition Policy" Website.
[8] J. P.Hughes and , L. J.Mester (1995): "Bank Capitalization and Cost
Evidence of Scale Economies in Risk Management and Signaling",
Review of Economics and Statistics, Vol. 80.
[9] R. S Demsetz, and , P. E. Strahan (1997); "Diversification Size, Risk at
Bank Holding Companies", Journal of Money, Credit and Banking, Vol.
29.
[10] S. J.Pilloff (1996): "Performance Changes and Shareholder Wealth
Creation Associated with Mergers of Publicly Traded Banking
Institutions", Journal of Money, Credit and Banking 28, 294 - 310.
[11] J. F. Houston, C. M. James, and M. D. Ryngaert (2001) ÔÇÿWher do
Merger Games Come frm: bank Mergers from the perspectiveof Insiders
and Outsiders", Journal of Fianacial Economics 60,285-331.
[12] M. F Penas. and H. Unal (2004): "Gains in Bank Mergers: Evidence
from the Bond Markets," Journal of Financial Economics 74, 149 - 179.
[13] C. C. Soludo (June 6, 2004): "Consolidating the Nigerian Banking
Industry to Meet the development Challenges of the 21st Century".
Being An Address Delivered to the SpecialMeeting of the Bankers-
Committee, Abuja: CBN Headquarter.
[14] G. L. Delong (1999): "Stockholders Gains from Focusing Versus
Diversifying BankMergers", Journal of Economics 59 (2) 221 - 252.
[15] J. U. J.Onwumere (2009): Business and Economic Research Methods,
2nd Edtion, Enugu, Vougasen Limited.
[16] Y.Yamane (1964) Statistics: An Introductory Analysis, New York:
Hamper & Row Publishers.
[17] E. G.Barbosa and C. C. Moraes (2003): "Determinants of Capital
Structure - the Case of the very small Enterprises" EconWPA, Finance
Series 0302001.
[18] A Ezeoha. (2008): "The Impact of Major Firm Characteristics on the
Financial Leverage of Quoted Companies in Nigeria". An Unpublished
Ph.D Thesis. Dept of Banking and Finance, UNEC.
[19] M. Anyanwaokoro (1996): Banking Methods and Processes, Enugu:
Hosanna Publications.
[20] M. Pandey (2004): "Capital Structure, Profitability and Market
Structure: Evidence fromMalaysia" Asia Pacific", Journal of Economics
and Business, 8(2)
[21] M. J.Barclay and C. W Smith Jr. (1995): "The Priority Structure of
Corporate Liabilities", The Journal of Finance, Vol. 50, No. 3, 899 -
917.
[22] R.Morck, A Shleifer,. and , R. W Vishny. (1988): "Management
Ownership and Market Valuation: An Empirical Analysis," Journal of
Financial Economics 20, 293 - 315.
[23] J. J.Wild., K. R Subramanyam and R. F Halsey. (2004): Financial
Statement Analysis,8th Ed. New York, McGraw Hill.
[24] J. C.Stein (1997): "Internal Capital Markets and the Competition for
Corporate Resources," Journal of Finance 52, 111 - 133.
[25] D. J Teece. (1990) "Economics of Scope and the Scope of the
Enterprise", Journal of Economic Behaviour and Organization 1, 223 -
247.
@article{"International Journal of Business, Human and Social Sciences:49526", author = "Ugwuanyi and Georgina Obinne and Ugwu and Joy Nonye", title = "The Effect of Corporate Diversification on the Profitability of the Financial Services Sector in Nigeria", abstract = "This paper examines the effect of corporate diversification on the profitability of the Financial services sector in Nigeria. The study relied on historic accounting data generated from financial (annual) reports and accounts of sampled banks between the period 1998 and 2007 (a ten-year period). A regression equation was formulated, in line with previous studies to shed light on the effect of corporate diversification on the profitability of the Financial services sector in Nigeria. The results of the regression analysis revealed that diversification impacts strongly on banks profitability. Conclusively the paper produces strong evidence to assert that diversification impacts positively and significantly on banks profitability because among other things such diversified banks can pool their internally generated funds and allocate them properly.
", keywords = "Diversification, firm size, operational efficiency,
profitability", volume = "6", number = "7", pages = "1686-5", }
