Is There a Diversification Discount in Financial Conglomerates?

Luc Laeven and Ross Levine ()

No 11499, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates whether the diversity of activities conducted by financial institutions influences their market valuations. We find that there is a diversification discount: The market values financial conglomerates that engage in multiple activities, e.g., lending and non-lending financial services, lower than if those financial conglomerates were broken into financial intermediaries that specialize in the individual activities. While difficult to identify a single causal factor, the results are consistent with theories that stress intensified agency problems in financial conglomerates that engage in multiple activities and indicate that economies of scope are not sufficiently large to produce a diversification premium.

JEL-codes: G2 G3 L2 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: CF IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published as Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.

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Related works:
Journal Article: Is there a diversification discount in financial conglomerates? (2007)
Working Paper: Is There a Diversification Discount in Financial Conglomerates? (2005)
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