Research Article
Impact of Diversification on Bank Stability: Evidence from Emerging and Developing Countries
Table 2
Description of variables and expected signs.
| | Variable | Description | Notation | Expected sign | | Stability | Risk |
| | Z score (to measure insolvency risk and stability) | | Z score | | | | Risk | Standard deviation of ROA | SDROA SDROE | | | | Standard deviation of ROE | | Income diversification | | IDV | + | − | | Loan diversification | Herfindahl–Hirschman Index (HHI) of loan composition | HHIloan | + | − | | Country-level corporate governance | World Governance Indicators index (WGI) | CLCG | + | − | | Liquidity | | LIQ | +/− | +/− | | Cost-to-income | | CIR | − | + | | Leverage | | LEV | + | + | | Net interest margin | | NIM | +/− | +/− | | Economic growth | Annual real GDP growth rate (%) | GDP | + | − | | Inflation rate | Annual inflation rate (%) | INF | − | + | | Crisis dummy | 1 for 2008 and 2009 and zero otherwise | CRD | − | + |
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Source: author estimates (2022).
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