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

Luc Laeven, Martin Goetz and Ross Levine ()

No 2012/050, IMF Working Papers from International Monetary Fund

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: WP; BHC diversity; bank deregulation; BHC valuation; BHC assets; gravity-deregulation model; Geographic Corporate diversification; Agency problems; Economies of scope; Corporate insiders; Corporate valuation; BHC asset diversification; BHC diversification increase; Estimation techniques; Personal income; Asset valuation; Gravity models; Global (search for similar items in EconPapers)
Pages: 35
Date: 2012-02-01
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Citations: View citations in EconPapers (13)

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Working Paper: The Valuation Effects of Geographic Diversification: Evidence from U.S. Banks (2011)
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