Cross-Industry Product Diversification and Contagion in Risk and Return: The Case of Bank-Insurance Takeovers

52 Pages Posted: 16 Jun 2012

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Panagiotis Dontis-Charitos

Westminster Business School, University of Westminster

Date Written: May 25, 2012

Abstract

We investigate the impact of domestic and international bank-insurance deals on the risk-return profiles of bidding banks, peer banks and peer insurers within a GARCH framework. We find that both announcing and non-announcing firms experience positive abnormal returns with the effect on insurer peers being larger and more gradual. These results establish the prevalence of intra- and inter-industry contagion and stand in contrast with studies documenting negative and/or insignificant results for bidders. Abnormal returns on bidder banks vary with leverage, relative size of the deal, growth opportunities, extent of bidder’s engagement in non-interest income activities, bidder-origin and bidder profitability. The overall risks of the bidders and peer firms decline following the bancassurance deals, with a larger component of the decline coming from idiosyncratic, rather than systematic risk. Risk and return contagion effects vary with the deal-size with larger deals demonstrating greater contagion. Our findings support the bancassurance phenomenon and the provision(s) of regulatory reforms, such as the Financial Services Modernization Act (1999).

Keywords: Cross-Industry, Bancassurance, Takeovers, Diversification, Spillovers, GARCH

JEL Classification: G21, G22, G32, G34

Suggested Citation

Elyasiani, Elyas and Staikouras, Sotiris and Dontis-Charitos, Panagiotis, Cross-Industry Product Diversification and Contagion in Risk and Return: The Case of Bank-Insurance Takeovers (May 25, 2012). Available at SSRN: https://ssrn.com/abstract=2084681 or http://dx.doi.org/10.2139/ssrn.2084681

Elyas Elyasiani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Sotiris Staikouras

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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