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

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Author Info
Iman van Lelyveld
Klaas Knot

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Abstract

There is an ongoing debate whether firm focus creates or destroys shareholder value. Earlierliterature has shown significant diversification discounts: firms that engage in multiple activitiesare valued less. Various factors are important in the size of the discount, for example crosssubsidizationand agency problems. The extant literature, however, generally focuses on nonfinancialfirms 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 findno universal diversification discount but significant variability. Size, complexity and risk seem tobe important determinants.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 174.

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Date of creation: May 2008
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Handle: RePEc:dnb:dnbwpp:174

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Related research
Keywords: financial conglomerates; firm valuation;

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Find related papers by JEL classification:
G2 - Financial Economics - - Financial Institutions and Services
G3 - Financial Economics - - Corporate Finance and Governance
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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    Other versions:
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  4. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August. [Downloadable!] (restricted)
    Other versions:
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