Geographic Expansion and Banks’ Risk: Evidence from Jordan

Kharabsheh, Buthiena; Daradkah, Demeh

doi:10.21608/aja.2019.36161

	Geographic Expansion and Banks’ Risk: Evidence from Jordan
المجلة العربية للإدارة
Article 16, Volume 39, Issue 2, June 2019, Pages 295-308 PDF (398.24 K)
Document Type: بحوث باللغة الإنجلیزیة
DOI: 10.21608/aja.2019.36161
Authors
Buthiena Kharabsheh¹; Demeh Daradkah²
¹Department of Banking and Finance, Faculty of Economics and Administrative Sciences, Yarmouk University, Hashemite Kingdom of Jordan
²Department of Banking and Finance, Faculty of Economics and Administrative Sciences, Yarmouk University, Hashemite Kingdom of Jordan
Abstract
This study investigates the impact of geographic expansion on banks’ risk and loan quality in Jordan during the period from 2000 to 2014. Geographic expansion is measured by Shannon Entropy whereby the bank’s risk is measured by standard deviation of ROA, standard deviation of ROE and Z-score. We find evidence that the banking industry in Jordan is highly concentrated and that although banks’ risk decreased with geographic expansion, loan quality was not affected. In addition, the results point to an important issue, that banks in Jordan are only impacted positively by geographic diversification, despite being negatively affected by main economic sector diversification, and are not affected by diversification in the broader sector i.e., service sector. These results are robust using alternative concentration measures and different estimation methods.
Keywords
Geographic Expansion; Banks; Shannon Entropy; Jordan; Risk

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