Measuring Corporate Diversity in Financial Services: A Diversity Index

Michie, Jonathan; Oughton, Christine

Abstract

This paper provides a measure of corporate diversity in financial services. Our index is based on four components: ownership; competitiveness; balance sheet structure/resilience; and geographic spread. The first of these sub-indexes measures ownership diversity based on the Berry index of diversification and the Gini-Simpson index of biodiversity. It captures the extent of diversity in ownership types – for the UK, banks, mutuals, and the government owned National Savings & Investment – where each of these have different objectives, creating diversity in behaviour. Our second sub-index captures the extent of competition, and is based on the inverse of the Hirschmann-Herfindahl index of concentration. Our third sub-index measures diversity in balance sheet structures and resilience across the financial sector. Our final sub-index captures the extent of geographic spread and the regional concentration of financial services. These indicators are combined into a single index – the D-Index – that measures diversity in financial services. The D-Index shows a marked decline in the run-up to the 2007–2009 financial crisis, followed by further falls during 2008 and 2009. Since then, the index has remained more or less flat. We are no closer to creating the conditions – of diversity – to avoid a repeat of the 2007-2009 global financial crisis.

Citation

Michie, J., & Oughton, C. (2022). Measuring Corporate Diversity in Financial Services: A Diversity Index. International Review of Applied Economics, 36(3), 308-337. https://doi.org/10.1080/02692171.2022.2090522

• Journal Article Type: Article
• Acceptance Date: May 31, 2022
• Online Publication Date: Jul 4, 2022
• Publication Date: Jul 4, 2022
• Deposit Date: Jun 25, 2022
• Publicly Available Date: Sep 13, 2022
• Journal: International Review of Applied Economics
• Print ISSN: 0269-2171
• Electronic ISSN: 1465-3486
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• Volume: 36
• Issue: 3
• Pages: 308-337
• DOI: https://doi.org/10.1080/02692171.2022.2090522
• Keywords: Financial services, corporate diversity, diversity index, financial stability
• Publisher URL: https://www.tandfonline.com/doi/full/10.1080/02692171.2022.2090522