Diversification, bank risk taking and performance: evidence from Tunisian banks

In this paper, we carry out an empirical study for the Tunisian market to shed light on the question whether the observed shift into non-interest income activities improves performance of commercial banks. Our main results can be summarised in three statements: banks diversified across both interest and non-interest income generating activities have higher levels of raw share returns than those focusing their activities; focusing into non-interest generating activities decreases market profitability of banks; banks that are functionally diversified also experience higher relative levels of systematic risk while the effect on the idiosyncratic risk component is non-significant.