Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutions
This study analyzes the possible impact of diversity in non-interest income on Nepalese Depository Financial Institutions (DFIs) performance. The study examines variables such as service fees, dividends on equity instruments, and the non-interest revenue ratio to total operational income as endogeno...
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2023-09-01
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| Series: | Investment Management & Financial Innovations |
| Subjects: | |
| Online Access: | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18846/IMFI_2023_03_Karki.pdf |
| _version_ | 1797677460700004352 |
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| author | Dipendra Karki Ganesh Bhattarai Rewan Kumar Dahal Kunti Dhami |
| author_facet | Dipendra Karki Ganesh Bhattarai Rewan Kumar Dahal Kunti Dhami |
| author_sort | Dipendra Karki |
| collection | DOAJ |
| description | This study analyzes the possible impact of diversity in non-interest income on Nepalese Depository Financial Institutions (DFIs) performance. The study examines variables such as service fees, dividends on equity instruments, and the non-interest revenue ratio to total operational income as endogenous factors. The ROE serves as the key profitability indicator. Additionally, the study explores the impact of control variables on the performance of financial institutions, such as the cost-to-income ratio, the equity-to-total assets ratio, and the ratio of non-performing loans to total loans. Secondary data from fiscal year 2015/16 to 2021/22 are utilized for analysis, employing correlation and regression analyses to assess the relationships between variables. Based on the Hausman Specification test, this study uses a Dynamic Analysis of Panel Data approach, adopting a Random effects regression model. The findings indicate that dividends from equity instruments ( = –0.565*) adversely affect profitability. At the same time, service fees and non-interest revenue as a proportion of overall operating revenue show no significant impact. Control factors like the cost-to-income ratios ( = –0.432**) and the equity-to-total assets ( = –94.101**) adversely affect profitability. The study suggests that income diversification may not be beneficial, urging Nepalese DFIs to prioritize interest income and consider alternative investment opportunities. Reducing the cost-to-income ratios and equity-to-total assets is recommended for enhancing profitability. |
| first_indexed | 2024-03-11T22:45:30Z |
| format | Article |
| id | doaj.art-2cf82c009be94147aa4488e23d205e83 |
| institution | Directory Open Access Journal |
| issn | 1810-4967 1812-9358 |
| language | English |
| last_indexed | 2024-03-11T22:45:30Z |
| publishDate | 2023-09-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Investment Management & Financial Innovations |
| spelling | doaj.art-2cf82c009be94147aa4488e23d205e832023-09-22T08:37:27ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582023-09-0120333234310.21511/imfi.20(3).2023.2818846Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutionsDipendra Karki0https://orcid.org/0000-0001-9045-7423Ganesh Bhattarai1https://orcid.org/0000-0001-9163-5172Rewan Kumar Dahal2https://orcid.org/0000-0002-1629-3720Kunti Dhami3https://orcid.org/0009-0006-5328-3878Assistant Professor, Faculty of Management, Nepal Commerce Campus, Tribhuvan UniversityAssistant Professor, Faculty of Management, Nepal Commerce Campus, Tribhuvan UniversityAssistant Professor, Faculty of Management, Nepal Commerce Campus, Tribhuvan UniversityResearch Scholar, Pokhara UniversityThis study analyzes the possible impact of diversity in non-interest income on Nepalese Depository Financial Institutions (DFIs) performance. The study examines variables such as service fees, dividends on equity instruments, and the non-interest revenue ratio to total operational income as endogenous factors. The ROE serves as the key profitability indicator. Additionally, the study explores the impact of control variables on the performance of financial institutions, such as the cost-to-income ratio, the equity-to-total assets ratio, and the ratio of non-performing loans to total loans. Secondary data from fiscal year 2015/16 to 2021/22 are utilized for analysis, employing correlation and regression analyses to assess the relationships between variables. Based on the Hausman Specification test, this study uses a Dynamic Analysis of Panel Data approach, adopting a Random effects regression model. The findings indicate that dividends from equity instruments ( = –0.565*) adversely affect profitability. At the same time, service fees and non-interest revenue as a proportion of overall operating revenue show no significant impact. Control factors like the cost-to-income ratios ( = –0.432**) and the equity-to-total assets ( = –94.101**) adversely affect profitability. The study suggests that income diversification may not be beneficial, urging Nepalese DFIs to prioritize interest income and consider alternative investment opportunities. Reducing the cost-to-income ratios and equity-to-total assets is recommended for enhancing profitability.https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18846/IMFI_2023_03_Karki.pdfdiversificationdividendsequityinvestmentnon-interest revenueprofitability |
| spellingShingle | Dipendra Karki Ganesh Bhattarai Rewan Kumar Dahal Kunti Dhami Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutions Investment Management & Financial Innovations diversification dividends equity investment non-interest revenue profitability |
| title | Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutions |
| title_full | Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutions |
| title_fullStr | Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutions |
| title_full_unstemmed | Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutions |
| title_short | Should income be diversified? A dynamic panel data analysis of Nepalese depository financial institutions |
| title_sort | should income be diversified a dynamic panel data analysis of nepalese depository financial institutions |
| topic | diversification dividends equity investment non-interest revenue profitability |
| url | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18846/IMFI_2023_03_Karki.pdf |
| work_keys_str_mv | AT dipendrakarki shouldincomebediversifiedadynamicpaneldataanalysisofnepalesedepositoryfinancialinstitutions AT ganeshbhattarai shouldincomebediversifiedadynamicpaneldataanalysisofnepalesedepositoryfinancialinstitutions AT rewankumardahal shouldincomebediversifiedadynamicpaneldataanalysisofnepalesedepositoryfinancialinstitutions AT kuntidhami shouldincomebediversifiedadynamicpaneldataanalysisofnepalesedepositoryfinancialinstitutions |