Universal Banks and Stock Market Reaction: Some Evidence from Major Announcements
Journal of Risk Finance, Vol. 10, pp. 244-260, 2009
Posted: 25 Nov 2007 Last revised: 2 Jul 2009
Date Written: January 30, 2009
The current study investigates the interface between the banking and insurance sector. The empirical findings are based on well-known financial intermediaries taken from an international sample. The analysis employs an event study methodology to evaluate the equity performance of these institutions. The magnitude and sign of equity returns appear to differ among the particular cases examined. Some firms exhibit considerable abnormal returns, while others remain passive to any corporate restructuring revelation, or even undrape stock market losses. In many cases, the latter is associated with the overall economic environment, and/or with investments which are not compatible with the general banking philosophy of 'fast growth within short-term horizons'. Based on equity returns, the bank-insurance interface seems to be the most preferable business restructuring; while insurance divestments and horizontal mergers, among financial intermediaries, do not perform as profitably as expected.
Keywords: Bank-insurance interface, Insurance divestments, Financial conglomerates, Event study, Abnormal equity returns
JEL Classification: G14, G21, G22
Suggested Citation: Suggested Citation