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

Author/Editor: Luc Laeven | Martin R. Goetz | Ross Levine
Authorized for Distribution: February 1, 2012
Electronic Access: Free Full Text (PDF file size is 1,099KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

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.
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Series: Working Paper No. 12/50
Subject(s): Banking | Commercial banks
Author's keyword(s): Geographic Corporate diversification; Agency problems; Economies of scope; Corporate insiders; Corporate valuation
    Published:   February 1, 2012        
    ISBN/ISSN:   9781463937119/1018-5941   Format:   Paper
    Stock No:   WPIEA2012050   Pages:   35
    Price:   US$18.00
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