Do financial conglomerates create or destroy value? Evidence for the EU

There is an ongoing debate about whether firm focus creates or destroys shareholder value. Earlier literature has shown significant diversification discounts: firms that engage in multiple activities are valued lower. Various factors are important in determining the size of the discount, for example...

Full description

Saved in:
Bibliographic Details
Published in:Journal of banking & finance 2009-12, Vol.33 (12), p.2312-2321
Main Authors: van Lelyveld, Iman, Knot, Klaas
Format: Article
Language:English
Subjects:
Banking
Banks
Business models
Conglomerates
Diversification
Diversification discount
Economic concentration
Europe
Financial conglomerates
Financial conglomerates Firm valuation Diversification discount Shareholder value
Financial performance
Firm valuation
Firm value
Insurance companies
Shareholder value
Stockholders
Studies
Valuation discounts
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:There is an ongoing debate about whether firm focus creates or destroys shareholder value. Earlier literature has shown significant diversification discounts: firms that engage in multiple activities are valued lower. Various factors are important in determining the size of the discount, for example cross-subsidization and agency problems. The existing literature, however, generally focuses on non-financial firms or on banks combining investment and commercial banking. Our paper focuses specifically on the valuation of bank-insurance conglomerates. We find no universal diversification discount but significant variability. The discount is explained by the size (increasing), the familiarity with the conglomerate business model (decreasing) and the risk profile (decreasing). Our results are robust to the historical origin, the merger record and the age of the conglomerate, as well as peer group specification and outlier elimination.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2009.06.007