We assess the association between geographic diversification and bank holding company (BHC) value and risk, controlling for the distance between the headquarters and branches. The distance-adjusted deposit dispersion index used as a measure of geographic diversification accounts for the number of locations where a BHC operates, the level of activity in each location, and the distance between a BHC and its branches. We find that geographic diversification is associated with BHC value enhancement and risk reduction, increased distance between a BHC and its branches is associated with firm value reduction and risk increase, and geographic diversification across more remote areas is associated with greater value enhancement but smaller risk reduction. Copyright (c) 2008 The Ohio State University.
We examine shareholder litigation and the price and nonprice terms of bank loan contracts. After filing a lawsuit, defendant firms pay higher loan spreads and up-front charges, experience more financial covenants, and are more likely to have a collateral requirement. These findings are consistent with reputational losses associated with shareholder litigation. The magnitude of a firm's lost market value when the lawsuit is filed is positively related to the increase in the firm's future borrowing costs. We investigate whether the lawsuit allegations and its merit affect future bank loan terms. Our results do not appear to be affected by self-selection.
We examine the relationship among the level and stability of institutional ownership, diversification, and riskiness of publicly traded bank holding companies. We find that large and stable institutional ownership is associated with a higher (lower) level of geographic, revenue, and nontraditional banking (asset) diversification and lower risk, suggesting that institutional investors are prudent and favor risk-reducing diversification strategies. The association between institutional ownership level and diversification is more pronounced under deregulation and during the crisis, suggesting a substitution effect between regulation and market discipline, and a greater level of monitoring and/or advising by institutional investors during the crisis, respectively.
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