Bank holding company diversification and production efficiency
Bank Holding Companies (BHCs) have been diversifying their businesses increasingly among banking, securities and insurance activities in the recent decades through establishment of Section 20 subsidiaries in earlier years and through formation of financial holding companies after the Gramm--Leach--Bliley Act (GLBA, 1999). This study examines whether BHC diversification is associated with improvement or detriment in its production efficiency. We apply the Data Envelopment Analysis (DEA) to calculate the Malmquist index of productivity, and the total factor productivity change for a sample of BHCs over the period 1997--2007. Two main results are obtained. First, technical efficiency is negatively associated with activity diversification and the effect is primarily driven by BHCs that did not experience diversification through Section 20 subsidiaries. Second, the degree of change in diversification over time is not associated with total factor productivity change but it is negatively associated with technical efficiency change. This latter relationship is also primarily exhibited for BHCs that did not establish Section 20 subsidiaries. It can be concluded that diversification is, on average, associated with lower production efficiency of BHCs, especially for those BHCs without first-mover advantage obtained through Section 20 subsidiaries. This is consistent with findings on diversification discount in the finance literature.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (2012)
Issue (Month): 17 (September)
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:22:y:2012:i:17:p:1409-1428. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.