TY - JOUR
T1 - Do financial conglomerates create or destroy value? Evidence for the EU
AU - van Lelyveld, Iman
AU - Knot, Klaas
PY - 2009/12
Y1 - 2009/12
N2 - 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.
AB - 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.
KW - Diversification discount
KW - Financial conglomerates
KW - Firm valuation
KW - Shareholder value
UR - http://www.scopus.com/inward/record.url?scp=70349479176&partnerID=8YFLogxK
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U2 - 10.1016/j.jbankfin.2009.06.007
DO - 10.1016/j.jbankfin.2009.06.007
M3 - Article
AN - SCOPUS:70349479176
SN - 0378-4266
VL - 33
SP - 2312
EP - 2321
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 12
ER -