Does the Stock Market Compensate Banks for Diversifying into the Insurance Business?

Financial Markets, Institutions and Instruments, Forthcoming 2010.

Posted: 10 Nov 2008 Last revised: 8 Oct 2010

See all articles by Philip Molyneux

Philip Molyneux

University of Sharjah - College of Business Administration

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Panagiotis Dontis-Charitos

Westminster Business School, University of Westminster

Date Written: October 1, 2010

Abstract

This paper explores a wide range of corporate restructurings, all available deals from wire services, in the banking and insurance sectors that led to bancassurance ventures. An event study methodology is employed to calculate excess returns on and around the deals’ announcement date. Using both univariate and multivariate analysis the paper finds bank driven mergers, deal’s size and regional categorization all triggering positive and significant market reactions. Unlike the univariate framework, multivariate analysis shows that geographic focus and language are not significant factors. The results also indicate that markets are indifferent with respect to bank withdrawals from the bank-insurance operations. Finally, Canadian, U.S. and European bank-insurance deals produce positive results, while Australasian bidders offer statistically insignificant equity returns.

Keywords: Bank-insurance interface, Divestments, Financial conglomerates, Event study, Abnormal equity returns

JEL Classification: G14, G21, G22

Suggested Citation

Molyneux, Philip and Staikouras, Sotiris and Dontis-Charitos, Panagiotis, Does the Stock Market Compensate Banks for Diversifying into the Insurance Business? (October 1, 2010). Financial Markets, Institutions and Instruments, Forthcoming 2010., Available at SSRN: https://ssrn.com/abstract=1297409

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

Sotiris Staikouras (Contact Author)

City University - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

Panagiotis Dontis-Charitos

Westminster Business School, University of Westminster ( email )

35 Marylebone Road
London NW1 5LS
United Kingdom

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