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

35 Pages Posted: 28 Feb 2012

See all articles by Luc Laeven

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Martin Richard Goetz

Goethe University Frankfurt

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2012

Abstract

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.

Keywords: Geographic Corporate Diversification, Agency Problems, Economies Of Scope, Corporate Insiders, Corporate Valuation, Banking, Commercial Banks, Financial Economics

JEL Classification: G21, G24, G34, L22

Suggested Citation

Laeven, Luc A. and Goetz, Martin Richard and Levine, Ross Eric, The Valuation Effects of Geographic Diversification: Evidence from U.S. Banks (February 2012). IMF Working Paper No. NO.12/50, Available at SSRN: https://ssrn.com/abstract=2012235

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Martin Richard Goetz

Goethe University Frankfurt ( email )

Theodor W Adorno Platz 4
Frankfurt, 60323
Germany

Ross Eric Levine

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
167
Abstract Views
1,323
rank
185,767
PlumX Metrics