Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy Baah Aye Kusi 1 Lydia Adzobu 1 Alex Kwame Abasi 2 Kwadjo Ansah-Adu 3 Abstract In this study, the effect of sectoral loan portfolio concentration on bank stability is investigated in the Ghanaian banking sector between 2007 and 2014. Specifically, we investigate the linearity and non- linearity effects of sectoral loan concentration on bank stability given the limited exploration of this nexus. Employing a two-step generalized method of moments (GMM) robust random and fixed effects panel models of 30 banks, the study provides evidence showing that sectoral loan concentration weakens the stability of banks. This confirms the concentration-fragility hypothesis and the diversification theory of traditional banking but may promote bank stability beyond a certain Article Journal of Emerging Market Finance 19(1) 66–99, 2020 © 2019 Institute for Financial Management and Research Reprints and permissions: in.sagepub.com/journals-permissions-india DOI: 10.1177/0972652719878597 journals.sagepub.com/home/emf 1 Department of Finance, University of Ghana Business School, Accra, Ghana. 2 Department of Accounting, Banking & Finance, Wisconsin International University College Ghana, Accra, Ghana. 3 Department of Banking and Finance, Valley View University, Accra, Ghana. Corresponding author: Baah Aye Kusi, Department of Finance, University of Ghana Business School, Accra, Ghana. E-mail: baahkusi@gmail.com