Is Geographic Diversification Associated With Increased Risk? Evidence From the Spanish Banking Crisis
Business & Economics
Juan-Ramon de Arana
This paper examines the association between geographic diversification and Spanish savings bank (caja) failure. The paper focuses on the geographic expansion of cajas between 2002 and 2012 and failure of several cajas between 2008 and 2011 during the Spanish banking crisis. Employing financial statement and branch location data collected from the CECA, logit models were used to test the association between failure and geographic and cultural diversification. This paper finds that, depending on the model estimated, geographic and cultural diversification of cajas either reduced or had no effect on the odds ratio of failure, suggesting that the benefits of asset diversification outweigh the costs and risks associated with entering unfamiliar markets and overcoming linguistic and cultural barriers. Thus, there is evidence that cajas may benefit from expanding geographically and into diverse cultural regions. Regulators should not discourage geographic diversification.
Anderson, Briana, "Is Geographic Diversification Associated With Increased Risk? Evidence From the Spanish Banking Crisis" (2014). Business and Economics Honors Papers. 13.
Finance and Financial Management Commons, Real Estate Commons, Regional Economics Commons