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Divestitures and the financial conglomerate excess value

Claudia Curi () and Maurizio Murgia ()
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Claudia Curi: Free University of Bozen-Bolzano, Faculty of Economics and Management

No BEMPS43, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: We exploit a unique sample of the world largest financial conglomerates from 15 countries and we track their largest asset sales over the period 2005-2013, which encompasses the two last financial crises (US subprime lending 2008-2009 and European sovereign debt 2010-2011). We find that divestitures have an impact on financial conglomerate valuation and contribute to reduce the conglomerate discount, a result driven by sales of financial service assets. Commercial banking divestitures have a positive impact on excess value, whereas investment banking divestitures have a weak effect on market valuation. Selling assets unrelated to financial sector has a significant effect on conglomerate excess value only at times of financial crises. These results are robust to the inclusion of multiple control variables and alternative econometric model specifications. All together, these results cast doubts on the existence of large benefits in financial conglomerates from combining financial service activities as well as nonfinancial businesses, suggesting that certain divestiture programs will be value-enhancing. This study has implications both for financial conglomerates boards who might direct their strategies to downsize their firms, and for regulators to address issues related to financial stability.

Keywords: financial conglomerates; conglomerate discount; excess value; divestiture; financial crises (search for similar items in EconPapers)
JEL-codes: G21 G22 G24 G32 G34 L2 (search for similar items in EconPapers)
Date: 2017-05
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Journal Article: Divestitures and the financial conglomerate excess value (2018) Downloads
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