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Does diversification protect European banks’ market valuations in a pandemic?

Mathieu Simoens (UGent) and Rudi Vander Vennet (UGent)
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Abstract
We use the Covid-19 pandemic to assess whether diversification in various dimensions can protect European banks from substantial negative valuation shocks. Our results demonstrate that functional diversification acts as an economically significant shock absorber: it mitigates banks' stock market decline by approximately 10 percentage points. Loan portfolio diversification also contributes to dampening the valuation shock, but with a much lower impact (4.4 percentage points). Geographical diversification fails to act as a shock absorber. Banks with lower pre-Covid systematic risk, higher liquidity buffers, higher cost efficiency and active in countries with better post-Covid growth prospects weathered the storm better.
Keywords
Finance, European banks, Covid-19, Valuation, Functional diversification, Geographical diversification, BUSINESS MODELS, PERFORMANCE

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Citation

Please use this url to cite or link to this publication:

MLA
Simoens, Mathieu, and Rudi Vander Vennet. “Does Diversification Protect European Banks’ Market Valuations in a Pandemic?” FINANCE RESEARCH LETTERS, vol. 44, 2022, doi:10.1016/j.frl.2021.102093.
APA
Simoens, M., & Vander Vennet, R. (2022). Does diversification protect European banks’ market valuations in a pandemic? FINANCE RESEARCH LETTERS, 44. https://doi.org/10.1016/j.frl.2021.102093
Chicago author-date
Simoens, Mathieu, and Rudi Vander Vennet. 2022. “Does Diversification Protect European Banks’ Market Valuations in a Pandemic?” FINANCE RESEARCH LETTERS 44. https://doi.org/10.1016/j.frl.2021.102093.
Chicago author-date (all authors)
Simoens, Mathieu, and Rudi Vander Vennet. 2022. “Does Diversification Protect European Banks’ Market Valuations in a Pandemic?” FINANCE RESEARCH LETTERS 44. doi:10.1016/j.frl.2021.102093.
Vancouver
1.
Simoens M, Vander Vennet R. Does diversification protect European banks’ market valuations in a pandemic? FINANCE RESEARCH LETTERS. 2022;44.
IEEE
[1]
M. Simoens and R. Vander Vennet, “Does diversification protect European banks’ market valuations in a pandemic?,” FINANCE RESEARCH LETTERS, vol. 44, 2022.
@article{8710342,
  abstract     = {{We use the Covid-19 pandemic to assess whether diversification in various dimensions can protect European banks from substantial negative valuation shocks. Our results demonstrate that functional diversification acts as an economically significant shock absorber: it mitigates banks' stock market decline by approximately 10 percentage points. Loan portfolio diversification also contributes to dampening the valuation shock, but with a much lower impact (4.4 percentage points). Geographical diversification fails to act as a shock absorber. Banks with lower pre-Covid systematic risk, higher liquidity buffers, higher cost efficiency and active in countries with better post-Covid growth prospects weathered the storm better.}},
  articleno    = {{102093}},
  author       = {{Simoens, Mathieu and Vander Vennet, Rudi}},
  issn         = {{1544-6123}},
  journal      = {{FINANCE RESEARCH LETTERS}},
  keywords     = {{Finance,European banks,Covid-19,Valuation,Functional diversification,Geographical diversification,BUSINESS MODELS,PERFORMANCE}},
  language     = {{eng}},
  pages        = {{8}},
  title        = {{Does diversification protect European banks’ market valuations in a pandemic?}},
  url          = {{http://doi.org/10.1016/j.frl.2021.102093}},
  volume       = {{44}},
  year         = {{2022}},
}

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