Diversification and performance of credit unions

Abstract

This chapter evaluates the impact of revenue diversification with expanding products and services upon the financial performance of credit unions. The diversification effect on credit union performance was verified through dynamic panel data models estimated by two-stage system Generalized Method of Moments. Semiannual information (spanning 2009 to 2014) of 525 unique credit unions informed the study. The analysis revealed that nine models estimated with proxies for performance based on profitability indicators showed that diversification does not affect the return of credit unions. However, in three other models, using the growth of adjusted shareholders' equity as a proxy for performance, it was possible to capture the effects of the diversification of revenues. These divergent results may indicate that credit union diversification strategies do not aim to increase dividends or profitability. But it may also suggest that this strategy helps cooperatives meet primary obligations by providing extra resources, maintaining their financial market positions, or even their survival.