Income diversity (1  - (Net interest income  - Other operating income)/Total operating income)). 
 
Laeven and Levine (2007) and Schmid and Walte (2009) show that a functional diversification of financial institutions is negatively associated with firm value. As diversification may be related to both firm value and corporate governance, we additionally control for the banks’ diversification activities. Our measure of the diversity of a bank’s business is based on Laeven and Levine (2007) and attempts to measure where a bank lies along the spectrum from pure commercial banking (i.e., lending) to specialized investment banking (i.e., fee/trading-based activities). 
Net interest income is interest income minus interest expense. Other operating income includes net fee income, net commission income, and net trading income. Total operating income includes net interest income, net fee income, net trading income, and net
commission income. A specialized loan-making bank will have a larger ratio of net interest income to total operating income, while a specialized investment bank is expected to have a larger share of other operating income (fees, commissions, and trading income). Income diversity takes on values between zero and one with higher values indicating greater diversification.18
 
(Aebi, 2012)