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

Abstract

There is an ongoing debate whether firm focus creates or destroys shareholder value. Earlier literature has shown significant diversification discounts: firms that engage in multiple activities are valued less. Various factors are important in the size of the discount, for example crosssubsidization and agency problems. The extant literature, however, generally focuses on nonfinancial firms or traditional banking (cf Laeven and Levine (2007) and Schmid and Walter (2006)). Our paper focuses specifically on the valuation of bank-insurance conglomerates. We find no universal diversification discount but significant variability. Size, complexity and risk seem to be important determinants. JEL codes:G2, G3, L2

The Profitability and Risk Effects of Russian Banking Institutions’ Involvement in Bancassurance: Merger Simulation Methodology

“…A large number of studies (Schmid and Walter 2009;DeYoung and Karine 2001;van Lelyveld and Knot 2009;Smith et al 2003;Stiroh 2004;Stiroh 2006) conducted empirical analyses using accounting (management) reporting. Typically, the return on assets (ROA) or return on equity (ROE) is used as standard measures of efficiency (profitability).…”

Interconnectedness of Financial Conglomerates

“…Our application using a stress test approach, which we believe is closer to fundamental risk, goes in the opposite direction. The explanation may lie in the argument of van Lelyveld and Knot [23], stating that the diversification bonus of financial conglomerates comes with an opacity drawback, for market participants. This opacity may appear to be more important during crisis, when market agents are said to be feverish, leading to the negative effect shown by market data.…”

“…In particular, financial conglomerates are much more affected than pure banks. A key paper concerning European financial conglomerates is van Lelyveld and Knot [23]. The authors compare the market performances of major European financial conglomerates with the market performances of major EU banks and insurances between 1995 and 2005.…”

Do domestic banks Mergers and Acquisitions Still Create Value? Recent Evidence from Europe

“…Ms&As do not only result in fewer players dominating capital markets, but also entail significant changes in the market value of the parties involved (Hankir et al, 2011). The wealth of knowledge regarding bank consolidation comes from the US studies whereas European banks have been largely underexplored even though this trend is gradually reversed (Beltratti and Paladino, 2013;Hagendorff et al, 2012;Lozano-Vivas et al, 2011 andVan Lelyveld andKnot, 2009, among others). While cross-border bank M&A transactions became increasingly popular since the mid-90s, even today the number of within-border (domestic) bank Ms&As outnumber them by far (Lozano-Vivas et al, 2011).…”