Conglomeration Versus Strategic Focus: Evidence from the Insurance Industry

July 1999

48 Pages Posted: 13 Mar 2000

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

J David Cummins

Temple University - Risk Management & Insurance & Actuarial Science

Mary A. Weiss

Temple University

Hongmin Zi

Hong-Ik University

Date Written: Working Paper No. 99-29

Abstract

We provide evidence on the validity of the conglomeration hypothesis versus the strategic focus hypothesis for financial institutions using data on U.S. insurance companies. We distinguish between the hypotheses using profit scope economies, which measures the relative efficiency of joint versus specialized production, taking both costs and revenues into account. The results suggest that the conglomeration hypothesis dominates for some types of financial service providers and the strategic focus hypothesis dominates for other types. This may explain the empirical puzzle of why joint producers and specialists both appear to be competitively viable in the long run.

JEL Classification: G22, G28, G34, L23, L89

Suggested Citation

Berger, Allen N. and Cummins, J. David and Weiss, Mary A. and Zi, Hongmin, Conglomeration Versus Strategic Focus: Evidence from the Insurance Industry (Working Paper No. 99-29). July 1999. Available at SSRN: https://ssrn.com/abstract=174810 or http://dx.doi.org/10.2139/ssrn.174810

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

J. David Cummins (Contact Author)

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk.
Philadelphia, PA 19122
United States
215-204-8468 (Phone)
215-204-4712 (Fax)

Mary A. Weiss

Temple University ( email )

Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
United States
215-204-1916 (Phone)

HOME PAGE: http://www.sbm.temple.edu/~rmidept/weiss.html

Hongmin Zi

Hong-Ik University ( email )

72-1 Sangsu-dong
Mapo-gu Seoul, Korea
Seoul 121-791
Korea

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