Diversification, Size and Risk: The Case of Bank Acquisitions of Nonbank Financial Firms

41 Pages Posted: 2 Mar 2016

See all articles by Barbara Casu

Barbara Casu

City University London - Sir John Cass Business School

Panagiotis Dontis-Charitos

Westminster Business School, University of Westminster

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Jonathan M. Williams

Bangor Business School, Bangor University

Date Written: March 2016

Abstract

We investigate the risk effects of bank acquisitions of insurance companies and securities firms between 1991 and 2012 using a newly constructed dataset of M&A deals. We examine risk changes before and after deal announcements by decomposing risk into systematic and idiosyncratic components. Subsequently, we investigate the relationship between risk and diversification by modelling the determinants of risks. We find that bank combinations with securities firms yield higher risks than combinations with insurance companies. Bank size is an important and consistent determinant of risk whereas diversification is not. Our results inform the continuing debate on diversification versus functional separation of bank activities.

Keywords: Banks, nonbank financial firms, financial conglomerates, diversification, risk decomposition, determinants of risk

Suggested Citation

Casu, Barbara and Dontis-Charitos, Panagiotis and Staikouras, Sotiris and Williams, Jonathan M., Diversification, Size and Risk: The Case of Bank Acquisitions of Nonbank Financial Firms (March 2016). European Financial Management, Vol. 22, Issue 2, pp. 235-275, 2016, Available at SSRN: https://ssrn.com/abstract=2740780 or http://dx.doi.org/10.1111/eufm.12061

Barbara Casu (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Panagiotis Dontis-Charitos

Westminster Business School, University of Westminster ( email )

35 Marylebone Road
London NW1 5LS
United Kingdom

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

Jonathan M. Williams

Bangor Business School, Bangor University ( email )

Bangor, Wales LL57 2DG
United Kingdom

HOME PAGE: http://www.bangor.ac.uk/%7Eabs056/main.htm

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