Geographic diversification and firm value in the financial services industry |
| |
Authors: | Markus M. Schmid Ingo Walter |
| |
Affiliation: | a University of Mannheim, Finance Area, D-68131 Mannheim, Germanyb Stern School of Business, New York University, New York, NY 10012, USA |
| |
Abstract: | This paper investigates whether geographic diversification is value-enhancing or value-destroying in the financial services sector, broadly defined. Our dataset comprises approximately 3579 observations over the period from 1985 to 2004 and covers the entire range of U.S. financial intermediaries — commercial banks, investment banks, insurance companies, asset managers, and financial infrastructure services firms. We use two alternative measures of geographic diversification: (1) a dummy variable whether the firm reports more than one geographic segment and (2) the percentage of sales from non-domestic operations. Our results indicate that geographic diversification is not associated with a significant valuation discount in financial intermediaries. However, when accounting for the firms' main activity-areas, we find evidence of a significant discount associated with geographic diversification in securities firms and a premium in credit intermediaries and insurance companies. All these results are robust after taking into account functional diversification of the firms, a potential endogeneity of both functional and geographic diversification, and a potential value transfer from equity to debt holders by using estimates of the market value of debt. |
| |
Keywords: | G20 G32 G34 |
本文献已被 ScienceDirect 等数据库收录! |
|