NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is There a Diversification Discount in Financial Conglomerates?

Luc Laeven, Ross Levine

NBER Working Paper No. 11499
Issued in August 2005
NBER Program(s):   CF   IFM

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.

download in pdf format
   (403 K)

email paper

This paper is available as PDF (403 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11499

Published: 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. citation courtesy of

Users who downloaded this paper also downloaded these:
Rajan, Servaes, and Zingales w6368 The Cost of Diversity: The Diversification Discount and Inefficient Investment
Laeven and Levine w14113 Bank Governance, Regulation, and Risk Taking
Lamont and Polk w7396 The Diversification Discount: Cash Flows vs. Returns
Matvos and Seru w17717 Resource Allocation within Firms and Financial Market Dislocation: Evidence from Diversified Conglomerates
Hubbard and Palia w6539 A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us