Diversity and Bank Performance in Transition Economies: The Mediating Role of State Ownership

This study examines the effect of diversification on commercial banks’ performance in Vietnam, a transitional economy. The diversification of commercial banks in Vietnam has problems due to the size of the economy and the macro-strategies that focus on state-owner involvement in business. By employing data from 37 Vietnamese commercial banks, the endogeneity problem is controlled; the study finds that diversification negatively affects bank performance. Interestingly, the existence of state ownership is evidence that banks should reduce their efforts to boost their performance. Moreover, the robustness shows that liquidity changes its effects on bank performance in terms of the involvement of state-owners. The findings can be evidence to policymakers to make a transparent and competitive banking sector in Vietnam.