The diversification and financial performance of US credit unions

For US credit unions, revenue from non-interest sources has increased significantly in recent years. We investigate the impact of revenue diversification on financial performance for the period 1993–2004. The impact of a change in strategy that alters the share of non-interest income is decomposed i...

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Bibliographic Details
Published in:Journal of banking & finance 2008-09, Vol.32 (9), p.1836-1849
Main Authors: Goddard, John, McKillop, Donal, Wilson, John O.S.
Format: Article
Language:English
Subjects:
Business management
Credit co-operatives
Credit unions
Diversification
Financial performance
Impact analysis
Profit
Risk
Studies
U.S.A
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Summary:For US credit unions, revenue from non-interest sources has increased significantly in recent years. We investigate the impact of revenue diversification on financial performance for the period 1993–2004. The impact of a change in strategy that alters the share of non-interest income is decomposed into a direct exposure effect, reflecting the difference between interest and non-interest bearing activities, and an indirect exposure effect which reflects the effect of the institution’s own degree of diversification. On both risk-adjusted and unadjusted returns measures, a positive direct exposure effect is outweighed by a negative indirect exposure effect for all but the largest credit unions. This may imply that similar diversification strategies are not appropriate for large and small credit unions. Small credit unions should eschew diversification and continue to operate as simple savings and loan institutions, while large credit unions should be encouraged to exploit new product opportunities around their core expertise.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2007.12.015