The Valuation Effects of Geographic Diversification: Evidence From U.S. Banks
February 1, 2012
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Summary
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.
Subject: Asset and liability management, Asset valuation, Banking, Econometric analysis, Estimation techniques, Gravity models, National accounts, Personal income, Population and demographics
Keywords: Agency problems, Asset valuation, bank deregulation, BHC asset diversification, BHC assets, BHC diversification increase, BHC diversity, BHC valuation, Corporate insiders, Corporate valuation, Economies of scope, Estimation techniques, Geographic Corporate diversification, Global, Gravity models, gravity-deregulation model, Personal income, WP
Pages:
35
Volume:
2012
DOI:
Issue:
050
Series:
Working Paper No. 2012/050
Stock No:
WPIEA2012050
ISBN:
9781463937119
ISSN:
1018-5941
