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The Valuation Effects of Geographic Diversification: Evidence from U.S. Banks

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  • Luc Laeven
  • Martin R. Goetz
  • Ross Levine

Abstract

This paper assesses the impact of the geographic diversification of bank holding company (BHC) assets across the United States on their market valuations. Using two novel identification strategies based on the dynamic process of interstate bank deregulation, we find that exogenous increases in geographic diversity reduce BHC valuations. These findings are consistent with the view that geographic diversity makes it more difficult for shareholders and creditors to monitor firm executives, allowing corporate insiders to extract larger private benefits from firms.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/50.

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Length: 35
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/50

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Keywords: Banking; Commercial banks;

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Cited by:
  1. Paola Brighi & Valeria Venturelli, 2013. "The Effect Of Revenue And Geographic Diversification On Bank Performance," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13103, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".

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