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Firm structure in banking and finance: is broader better?

Author

Listed:
  • Schmid, Markus

    (University of St. Gallen)

  • Walter, Ingo

    (New York University)

Abstract

A focal point in strategic and regulatory debates about the pros and cons of diversification among financial institutions continues to be the issue of economies of scope in financial intermediation. In this paper, we summarize the theoretical research on the value of diversification in financial services firms, and survey the empirical research so far on the conglomerate discount in U.S. and international financial services businesses. We also review research on the internal capital market efficiency of universal banks and financial conglomerates. The paper provides new empirical evidence on the conglomerate discount in U.S. financial intermediaries and how that changes between non-crisis and crisis periods, showing a decline in the discount under turbulent conditions.

Suggested Citation

  • Schmid, Markus & Walter, Ingo, 2014. "Firm structure in banking and finance: is broader better?," Journal of Financial Perspectives, EY Global FS Institute, vol. 2(2), pages 65-75.
    • Handle: RePEc:ris:jofipe:0052
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    Citations

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    Cited by:

    1. Joseph P. Hughes & Loretta J. Mester, 2018. "The Performance of Financial Institutions: Modeling, Evidence, and Some Policy Implications," Departmental Working Papers 201805, Rutgers University, Department of Economics.

    More about this item

    Keywords

    Diversification; Organizational structure; Banks; Financial intermediaries;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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