Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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The Diversification and Financial Performance of Korean Credit Unions

신용협동조합의 영업다각화가 경영성과에 미치는 영향

  • Hyun, Jung-Hwan (Department of International Trade, Kwangwoon University)
  • 현정환 (광운대학교 국제통상학부)
  • Received : 2018.08.31
  • Accepted : 2018.09.21
  • Published : 2018.09.30
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Abstract

This paper examines the relationship between diversification and financial performance of community credit unions in Korea from 2011 to 2017. To do so, I employ fixed-effects panel analyses using credit union level panel data collected from the National Credit Union Federation of Korea. This study finds evidence that business diversification is likely to lower the ratio of troubled loans, which means improving asset quality of credit unions. However, the relationship between diversification and asset quality is not linear but nonlinear, which means over-diversification would have negative effects on asset quality. Next, diversification tends to increase profitability. Specifically, although diversification results in a rise in expenditures, an increase in profits made by diversification outweighs the rise in expenditures, which contributes to profitability. Put together, diversification would be a good business strategy to improve both profitability and asset quality. Given a result that fast loan growth deteriorates asset quality, credit unions' managers might adopt the diversification strategy to enhance asset quality, and not to pursue their own objectives motivated by moral hazards.

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