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Conglomeration versus strategic focus: evidence from the insurance industry

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Author Info
Allen N. Berger
J. David Cummins
Mary A. Weiss
Hongmin Zi

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Abstract

We use data on U.S. insurance companies to examine the validity of the conglomeration hypothesis versus the strategic focus hypothesis for financial institutions. We distinguish between the hypotheses using profit scope economies, which measures the relative efficiency of joint versus specialized production, taking both costs and revenues into account. The results suggest that the conglomeration hypothesis dominates for some types of financial service providers and the strategic focus hypothesis dominates for other types. This may explain the empirical puzzle of why joint producers and specialists both appear to be competitively viable in the long run.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-40.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-40

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Related research
Keywords: Insurance industry ; Financial services industry ; Consolidation and merger of corporations;

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  28. John, Kose & Ofek, Eli, 1995. "Asset sales and increase in focus," Journal of Financial Economics, Elsevier, vol. 37(1), pages 105-126, January. [Downloadable!] (restricted)
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  30. Comment, Robert & Jarrell, Gregg A., 1995. "Corporate focus and stock returns," Journal of Financial Economics, Elsevier, vol. 37(1), pages 67-87, January. [Downloadable!] (restricted)
  31. Berger, Allen N. & Humphrey, David B. & Pulley, Lawrence B., 1996. "Do consumers pay for one-stop banking? Evidence from an alternative revenue function," Journal of Banking & Finance, Elsevier, vol. 20(9), pages 1601-1621, November. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. J. David Cummins & Georges Dionne & Robert Gagné & Abdelhakim Nouira, 2006. "Efficiency of Insurance Firms with Endogenous Risk Management and Financial Intermediation Activities," Cahiers de recherche 0616, CIRPEE. [Downloadable!]
    Other versions:
  2. Lucinda Trigo Gamarra, 2007. "Single- versus Multi-Channel Distribution Strategies in the German Life Insurance Market: A Cost and Profit Efficiency Analysis," Thuenen-Series of Applied Economic Theory 81, University of Rostock, Institute of Economics, Germany. [Downloadable!]
  3. Philip E. Strahan & Amir Sufi, 2001. "Expansion of bank powers: who gains the most?," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 682-698.
  4. Dean Amel & Colleen Barnes & Fabio Panetta & Carmelo Salleo, 2002. "Consolidation and efficiency in the financial sector: a review of the international evidence," Finance and Economics Discussion Series 2002-47, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. J. Cummins & Gregory Nini, 2002. "Optimal Capital Utilization by Financial Firms: Evidence from the Property-Liability Insurance Industry," Journal of Financial Services Research, Springer, vol. 21(1), pages 15-53, February. [Downloadable!] (restricted)
  6. Allen N. Berger, 2000. "The integration of the financial services industry: where are the efficiencies?," Finance and Economics Discussion Series 2000-36, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Santiago Carbó Valverde & Francisco Rodríguez Fernández, 2005. "New evidence of scope economies among lending,deposit-taking, loan commitments and mutual fund activities," ThE Papers 05/01, Department of Economic Theory and Economic History of the University of Granada.. [Downloadable!]
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  8. Narjess Boubakri & Georges Dionne & Thouraya Triki, 2006. "Consolidation and Value Creation in the Insurance Industry: the Role of Governance," Cahiers de recherche 0626, CIRPEE. [Downloadable!]
    Other versions:
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