Complexity and Risk in Brazilian Banking Holding Companies

Authors

  • Carlos André Marinho Vieira Universidade Federal da Paraíba – UFPB
  • Mariana Câmara Gomes e Silva Universidade Federal do Rio Grande do Norte – UFRN
  • Rafaela Rodrigues da Silva Universidade Federal do Rio Grande do Norte – UFRN
  • Débora Bezerra Florêncio Universidade Federal Rural do Semi-Árido – UFERSA

Keywords:

Complexity, Bank diversification, Earnings volatility, Bankruptcy risk, Banking holdings.

Abstract

The aim of this paper is to study the influence of banking complexity on earnings volatility and bankruptcy risk of banking holding companies. Although banking complexity is seen as a danger to the financial system, empirical evidence name many benefits of complexity, including lower risk, lower sensitivity to systemic shocks and a raise in profitability. We employed two main proxies to measure complexity. The first proxy was based on revenue diversification and the second proxy added ubiquity dimension of bank revenues. Our sample contains banking holding companies from Brazil between 1994 to 2015. The main results suggest that diversification and complexity are not related to earnings volatility and bankruptcy risk. On the other hand, we found out that bank size moderates the relation between complexity and risk. It suggests that the ubiquity, as the theoretical difference between diversification and complexity, is an important piece of the puzzle that try to explain what drives banking risk.

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Published

2020-07-06

Issue

Vol. 17 No. 2 (2020): APR/JUN

Section

Articles

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