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.