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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26090
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| Title: | Do Financial Conglomerates Create or Destroy Economic Value? |
| Authors: | Walter, Ingo
Schmid, Markus M. |
| Keywords: | Diversification
Focus
Organizational structure
Financial sector
Firm valuation |
| Issue Date: | 7-Sep-2006 |
| Series/Report no.: | EC-06-28 |
| Abstract: | This paper attempts to ascertain whether or not functional
diversification is value-enhancing or value-destroying in the financial
services sector. Based on a U.S. dataset comprising approximately 4060
observations covering the period 1985-2004, we report a substantial and
persistent conglomerate discount among financial intermediaries. Our
results suggest that it is diversification that causes the discount, and
not that troubled firms diversify into other more promising areas. We
also investigate the geographic dimension of diversification as well as
the interaction between geographic scope and functional diversification
and find that the value-destruction associated with functional
diversification is not apparent in geographic diversification. A further
finding is that there is a significant premium for the very largest of
our sample firms (with total assets above 100bn USD) indicating that
there are "too big to fail" guarantees for very large
financial conglomerates. |
| URI: | http://hdl.handle.net/2451/26090 |
| Appears in Collections: | Economics Working Papers
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