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The Valuation Effects of Geographic Diversification; Evidence From U.S. Banks

  • Luc Laeven
  • Martin R. Goetz
  • Ross Levine

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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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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