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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27387
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| Title: | Do Financial Conglomerates Create or Destroy Economic Value? |
| Authors: | Schmid, Markus M.
Walter, Ingo |
| Keywords: | Diversification; Focus
Organizational structure
Financial sector
Firm valuation |
| Issue Date: | 3-Dec-2007 |
| Series/Report no.: | FIN-06-015 |
| Abstract: | This paper investigates whether functional diversification is
value-enhancing or value-destroying in the financial services sector,
broadly defined. Based on a U.S. dataset comprising approximately 4,060
observations covering the period 1985-2004, we report a substantial and
persistent conglomerate discount among financial intermediaries. The
study differs materially from earlier work on scope dimensions of
financial institution structures. Our results suggest that it is
diversification that causes the discount, and not that troubled firms
diversify into other more promising areas. In addition, the discount
applies to all financial services industries with the exception of
investment banking and is stable over different combinations of
financial activity areas with the exception of commercial banking units
combined with insurance companies and/or investment banking activities.
Finally, our results reveal that geographic diversification per se is
not associated with a significant discount. Although geographic
diversity is value destroying in all financial services activity-areas
when there are more geographic segments and the activities are
distributed relatively evenly over these segments. |
| URI: | http://hdl.handle.net/2451/27387 |
| Appears in Collections: | Finance Working Papers
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