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The Valuation Effects of Geographic Diversification

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Author Info

  • 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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Related research

Keywords: Banking; Commercial banks; deregulation; bank holding; holding company; bank holding company; market capitalization; bank holding companies; return on equity; bank subsidiaries; stock market capitalization; bank regulations; bank competition; banking institutions; asset diversification; banking industry; banking market; banking sector; investment banking; federal deposit insurance; bank capital; specialized bank; bank loan; bank branches; banking system; banking assets; bank equity; income statement; ownership structure; bank valuation; bank capitalization; bank network; bank performance; banking asset; banking institution; universal banking; bank branch; market structure;

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References

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  1. Jose M. Liberti & Atif R. Mian, 2009. "Estimating the Effect of Hierarchies on Information Use," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4057-4090, October.
  2. Gordon M Phillips & Vojislav Maksimovic, 1999. "Do Conglomerate Firms Allocate Resources Inefficiently?," Working Papers 99-11, Center for Economic Studies, U.S. Census Bureau.
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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".
  2. Céline Meslier & Donald P. Morgan & Katherine Samolyk & Amine Tarazi, 2014. "The Benefits of Intrastate and Interstate Geographic Diversification in Banking," Working Papers hal-00950504, HAL.

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