This study explores the impact of traditional banks transforming into financial holding banks on their operating performance (due to diversification). We collected samples and analyzed data on 22 banks in Taiwan from 2006 to 2015 (14 financial holding corporations and 8 commercial banks) and report here the two main findings of our analysis:
1.The mean difference test yielded a statistically significant difference in the operating performance of financial holding banks and non-financial holding banks, with the profitability of financial holding banks being superior to that of non-financial holding banks.
2.We employed regression analysis on the basis of three subgroups: financial holding banks, non-financial holding banks, and full sample banks. In summary, both the measures of diversification—interest revenue over net operating income and non-interest revenue over net operating income— influence the return on assets of banks significantly and positively; however, the magnitude of the effect varies with different subgroups. The result suggests that if a financial holding corporation diversifies its businesses, its profitability improves. In addition, while the relationship between interest or non-interest revenue over net operating income and return on equity of financial holding banks is positive, it is not statistically significant.
