Identifying the valuation effects and agency costs of corporate diversification

Evidence from the geographic diversification of U.S. banks

L. Laeven, M. Goetz, R. Levine

Research output: Contribution to journalArticleScientificpeer-review

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 new identification strategies based on the dynamic process of interstate bank deregulation, we find that exogenous increases in geographic diversity reduced BHC valuations. We also find that the geographic diversification of BHC assets increased insider lending and reduced loan quality. Taken together, these findings are consistent with theories predicting that geographic diversity intensifies agency problems.
Original languageEnglish
Pages (from-to)1787-1823
JournalThe Review of Financial Studies
Volume26
Issue number7
DOIs
Publication statusPublished - 2013

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Agency costs
Geographic diversification
Bank holding companies
Corporate diversification
Valuation effects
Assets
Loans
Company valuation
Agency problems
Deregulation
Dynamic process
Insider
Lending
Market valuation

Cite this

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Identifying the valuation effects and agency costs of corporate diversification : Evidence from the geographic diversification of U.S. banks. / Laeven, L.; Goetz, M.; Levine, R.

In: The Review of Financial Studies, Vol. 26, No. 7, 2013, p. 1787-1823.

Research output: Contribution to journalArticleScientificpeer-review

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