How does the stock market value bank diversification? Evidence from Vietnam

- We investigate how stock market values bank diversification in Vietnam.
- We find a negative relationship between bank diversification and stock market valuation.
- We find that investors tend to be more lenient on large bank diversification.

Even though commercial banks have gradually followed the diversification strategy and deeply penetrated into non-traditional businesses for further income sources, studies on potential diversification benefits provide mixed results. This paper investigates how stock market values bank diversification using a data set of Vietnamese listed banks for the period 2006-2014. Overall, we find a negative relationship between bank diversification and stock market valuation. This implies investor preference for banks focusing on traditional activities.