Does the Size of a Bank Moderate the Relationship Between Income, Asset Diversification, and Bank Stability?

The study investigated the moderating effect of bank size on the relationship between income diversification and asset diversification on bank stability in the context of commercial banks in Bangladesh. A total of 180 observations from 36 listed banks were collected, all listed on the Dhaka Stock Exchange. The sample period of this study spanned from 2018 to 2022. The findings revealed that both income and asset diversification had a positive impact on bank stability. Bank size moderated the relationship between income and asset diversification with bank stability. Thus, increasing the size of banks reduced the benefits of income and asset diversification on bank stability, suggesting that larger banks may not gain much from diversification. These results have implications for policymakers and bank managers. They should employ diversification strategies tailored to bank size so that banks will benefit from diversification in the long run. This study is one of the few that uniquely reveals a negative moderating role of bank size in diversification (income and asset) and stability relationships.