Purpose: The purpose of this paper is to investigate the impact of diversification on profitability, profit efficiency and financial stability of Ghanaian banks. Design/methodology/approach: The authors employed a panel regression technique on a data set of 32 banks from 2000 to 2015. The data envelopment analysis is used to compute profit efficiency scores with credit risk accounted for. Findings: The results suggest that income diversification decreases profit, profit efficiency and financial stability. The impact on profit and stability is U-shaped. The impact of asset diversification was found to be insignificant. High competition reduces both profitability and profit efficiency which is inconsistent with the quiet-life hypothesis of Hicks (1935), but financial stability increases with competition. High investment in tangible assets is associated with poor performance. Non-banking financial institutions that later became universal banks are not financially stable. Competition, size, age, government ownership and leverage which are controlled for and a sensitivity analysis conducted also provided relevant insights. Practical implications: The results are relevant in understanding the events in the Ghanaian banking industry in 2017–2018. Income diversification strategy is essential in determining the performance of banks. Management has to figure out the extent and scope of their diversification to benefit from the strategy. Originality/value: The authors examined diversification from the view-point of both the income statement and statement of financial position while most prior studies focused on only one aspect. The study is one of the few studies that employed the risk-adjusted profit efficiency measure in Sub-Saharan Africa.

Purpose: The purpose of this paper is to examine the impact of intellectual capital and its components on bank diversification choice. Design/methodology/approach: Both asset and income diversification are computed and an unbalanced panel data set of 32 banks covering the period 2000–2015 have been used. The panel corrected standard error regression has been used to account for serial correlation and heteroscedasticity. Findings: The study found that intellectual capital determines the choice of diversifying. Precisely, intellectual capital motivates asset diversity but it dissuades income diversification. Human capital and structural capital are major components that determine asset diversity decisions. Income diversification decision, in this case to choose a focus strategy, is determined by human capital. This gives credence for the human capital theory in Ghana. Competition encourages a focus strategy. Bank size and leverage enhances income diversification while stock exchange listing and government ownership fosters the focus strategy. Practical implications: Diversification strategy, knowledge base of staff, corporate governance and internal control have been considered as factors leading to the collapse of some Ghanaian banks in 2017–2018. The study provides relevant insights for regulators, decision support units and corporate boards. Intellectual capital and value added metrics should be used for modelling and decision making as they have value relevance. Originality/value: This is a premier study that has examined the nexus between diversification strategy and intellectual capital in banks.

Purpose: This paper investigates the impact of intellectual capital and its components on slack-based technical efficiency (SBM-TE) of banks. Design/methodology/approach: Data envelopment analysis is used to compute SBM-TE scores and the Value-Added Intellectual Coefficient (VAIC™) model is used to measure intellectual capital. An unbalanced panel of 32 banks that operated from 2000 to 2017 has been used. Findings: Overall, the efficiency scores are averaged at 79%, suggesting that an inefficient bank needs to enhance technical efficiency by 21% to be at par with the best performing banks. Beta-convergence and sigma-convergence exist among banks with faster speed evident among listed and local banks. Intellectual capital has a positive impact on SBM-TE and human capital is the main driver of technical efficiency among banks. This result is specifically evident among non-listed banks and foreign banks. Economies of scale property are also evident among the banks. Competition and asset tangibility inhibit technical efficiency among banks. Practical implications: Banks are advised to invest in value-adding emerging technologies and their employees so as to enhance their efficiency. The study offers insights for policymakers, practitioners and researchers in emerging markets. Originality/value: The study is premier in employing the SBM-TE to explain the intellectual capital and efficiency nexus, as well as, testing for both beta-convergence and sigma-convergence.

Purpose: This study explores the effect of income diversification strategy on credit risk and market risk of microfinance institutions (MFIs) in Ghana as an emerging market.Design/methodology/approach: The study is based on quarterly data of averagely 271 MFIs that have operated from 2016 to 2018. The dataset is unbalanced and pooled cross-sectional with 3,259 data points. The study measures the diversification strategy using income diversification indices, and accounting ratios to measure the other variables. We utilised the weighted least squares (WLS) approach to explore the nexus.Findings: The findings show that income diversification is associated with better loan quality and credit risk management. Market risk increases with the level of income diversification of microfinance firms. It is evident that large MFIs can manage their credit risks well and can have a low default rate, depicting an overall U-shaped nexus. On the other hand, the effect of size on market risk is an inverted U-shaped. The effect of asset tangibility on credit risk is positively significant while the effect on market risk is negatively significant. High profitability enhances credit risk management leading to lower loan losses while in the case of diversified and profitable MFIs, they tend to invest more in government securities. The results suggest that MFIs that hold more cash and cash equivalents tend to have high loan loss provision and more government securities suggesting much attention should be paid to optimal cash management.Practical implications: The results throw light on the credit risk and market risk profile of the firms and the effect of diversification strategies on them. The findings are relevant for effective macroprudential regulation, market regulation and prudential regulation of the microfinance sector.Social implications: The findings reveal the nature of income diversification strategy of MFIs in emerging markets such as Ghana, pointing out how they affect the risk exposure of MFIs that lend to the pro-poor population.Originality/value: This is a premier formal assessment of the nexus between income diversification strategies and risk management among MFIs that serve the pro-poor population in the emerging market context.