Effect of income diversification on Canadian credit union performance: Evidence from long panel

Abstract We investigate the impact of income diversification on the performance of the largest Canadian CUs using a long panel from 2004 to 2019. We find that non‐interest income enhances the performance of credit unions, both on a risk unadjusted and risk‐adjusted basis. This result is robust to alternative measures of performance, and even when we address endogeneity and persistence of the performance measure using the dynamic panel method. We find that income diversification enhances performance more for larger credit unions compared to smaller credit unions. During the financial crisis period, we find that on average all CUs' performance was affected. But for larger CUs, a higher share of non‐interest income has a 50% less detrimental effect on performance compared to smaller CUs.