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Sunday, May 17, 2020 | History

4 edition of Is there a diversification discount in financial conglomerates? found in the catalog.

Is there a diversification discount in financial conglomerates?

Luc Laeven

Is there a diversification discount in financial conglomerates?

by Luc Laeven

  • 43 Want to read
  • 39 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English

    Subjects:
  • Bank mergers.,
  • Diversification in industry.,
  • Consolidation and merger of corporations.

  • Edition Notes

    StatementLuc Laeven, Ross Levine.
    SeriesNBER working paper series ;, working paper 11499, Working paper series (National Bureau of Economic Research : Online) ;, working paper no. 11499.
    ContributionsLevine, Ross., National Bureau of Economic Research.
    Classifications
    LC ClassificationsHB1
    The Physical Object
    FormatElectronic resource
    ID Numbers
    Open LibraryOL3478465M
    LC Control Number2005618499

    (e.g., Amihud and Lev, ). Consequently, the diversification discount only occurs in levered firms and stems from conflicts of interest between managers and shareholders over corporate risk taking.). In fact, there is a second aspect of our “risk argument” which is that, even without a di-.   Financial conglomerates are important features of the financial landscape in emerging markets as well, as Stijn Claessens of the University of Amsterdam reported in his paper. and gains associated with financial conglomerates is very limited, although there is a very large literature on the conglomerate discount for non-financial firms. A number of em-. This paper investigates whether functional diversification is value-enhancing or value-destroying in the financial services sector, broadly defined. Based on a U.S. dataset comprising approximately 4, observations covering the period , we report a substantial and persistent conglomerate discount among financial intermediaries.

    Also published in European Financial Management, , , – Rajan, R. (). A step in the dark: Unconventional monetary policy after the crisis. Do financial conglomerates create or destroy value? Evidence for the EU Iman van Lelyveld ♣♣♣♦♣♦♦♦ and Klaas Knot ♣∗∗∗ April Abstract There is an ongoing debate whether firm focus creates or destroys shareholder value.   Conglomerates have been out of fashion for 30 years. So why is Google trying to venture into cars, home automation, and life sciences? Simply put: because sometimes it . A conglomerate is a combination of multiple business entities operating in entirely different industries under one corporate group, usually involving a parent company and many , a conglomerate is a multi-industry merates are often large and multinational.. Conglomerates were popular in the s due to a combination of low interest rates and a repeating .

    Advantages of Diversification in Financial Conglomerates There are various sources in the financial literature describing the benefits of diversification for financial conglomerates, and in this section we have looked at the activity diversification effect from various perspectives. the international financial community have sought to explore the ways in which some of their concerns relating to the supervision of financial conglomerates could be addressed. Those groups have approached the subject from the perspective of a particular sector - the supervision of banks, or of securities firms, or of insurance companies.   Yet big conglomerates are regaining favor, as some researchers and long-term shareholders argue that the case for diversification is stronger after the financial crisis. The Impact of Unrelated Diversification on Firm Value Abstract This thesis examines the impact of unrelated diversification on firm value for both German and Dutch publicly listed firms. I find that unrelated diversified German conglomerates possess a higher relative value of % compared to their related diversified counterparts; for.


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Is there a diversification discount in financial conglomerates? by Luc Laeven Download PDF EPUB FB2

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 of financial conglomerates that engage in multiple activities, Is there a diversification discount in financial conglomerates?

book, lending and non-lending financial services, are lower than if those financial conglomerates were broken into financial Cited by: We find that there is a diversification discount: The market values of financial conglomerates that engage in multiple activities, e.g., lending and non-lending financial services, are lower than.

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.

Conglomerate Is there a diversification discount in financial conglomerates? book A reference to the tendency of the stock market to undervalue the stocks of conglomerate Is there a diversification discount in financial conglomerates?

book. Conglomerate discount is calculated by adding an estimation of. existence of a diversification discount in financial conglomerates. The results on income diversity are reported in column (6) of Panel A in Table 5, while the asset diversity results are given in Panel B.

In the excess value equation, both income diversity and asset diversity enter negatively and significantly. Is there a diversification discount in financial conglomerates. Cambridge, Mass.: National Bureau of Economic Research, © (OCoLC) Material Type: Internet resource: Document Type: Book, Internet Resource: All Authors / Contributors: Luc Laeven; Ross Levine; National Bureau of Economic Research.

"This paper investigates whether the diversity of activities conducted by financial institutionsinfluences their market valuations. We find that there is a diversification discount: The marketvalues financial conglomerates that engage in multiple activities, e.g., lending and non-lending financial services, lower than if those financial conglomerates were broken into financialintermediaries.

Conglomerate discount is an economic concept describing a situation when the stock market values a diversified group of businesses and assets at less than the sum of its parts. The explanation of this phenomenon comes from a conglomerate's inability to manage various and different businesses as well as do focused ore, the market penalizes a multi-division firm and attaches a.

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.

There is also a wide variation in excess value, with a number of conglomerates trading at a premium, which the authors try to explain. The authors describe how a discount might arise in a business in which there are two divisions and headquarters has limited power over division managers.

Each division must choose one of two investments. As can be seen in Exhibit 2, simply looking at the averages in Exhibit 1 hides a very important message: there is a very large variation in whole vs.

sum of the parts. On average, diversified companies trade at a 6% discount to the sum of the parts, not too different than the 10% differential in. 1 Servaes ~!finds a discount for conglomerates during the s while Matsusaka to a lot of persistence in diversification status.

As yet, there is no clear understanding of the and Weintrop Explaining the Diversification Discount!, and.

Explaining the Diversification Discount. Explaining the Diversification Discount!. Conglomerates Didn’t Die. They Look Like Amazon. book publishing; If there is any lesson from the last breed of industrial conglomerates, it is that there is a natural life cycle to most. Conglomerate: A conglomerate is a corporation that is made up of a number of different, seemingly unrelated businesses.

In a conglomerate, one company owns a controlling stake in. We survey the recent literature on corporate diversification. How does corporate diversification influence firm value. Does it create or destroy value. Until the beginning of this century, the predominant thinking among researchers and practitioners was that corporate diversification leads to an average discount on firm value; however, several studies cast doubt on the diversification discount.

However, the global financial crisis of and the European debt crisis of have sparked off an active debate among financial economists about the so-called "diversification discount" or lack thereof, as the value of diversification might have changed, and if so, why.

Because financial conglomerates are often made up of entities coming under various jurisdictions and subject to differing supervisory regimes, cooperation among regulatory authorities both domestically and internationally will clearly be an important pre­requisite of any effort to improve the prudential supervision of financial conglomerates.

The selection of the 45 listed financial conglomerates was based on the list of the “EU Mixed technical group on supervision of financial conglomerates” as compiled on 13th July However, this list is based on the EU-definition and is in two parts: the degree.

Diversification discount in financial conglomerates» 53 Is there a diversification discount in non-financial con-glomerates?» 54 Theories, findings, and general issues» 54 Evidence from the financial crisis» risk calculations.

Different corporate structures of financial conglomerates and capital and risk transfer instruments are discussed in Section 3. Section 4 analyzes the measurement of diversification benefits and conglomerate discount in the considered group structures.

To il. and the US) over the periodpdf that there is a significant diversification discount in the pre-crisis period, but this effect decreases over time and becomes less relevant after the financial crisis. 3 See for instance Demirgüç-Kunt, A.

and H. Huizinga (), ‘Bank .Stock markets apply a download pdf discount of ___ on unrelated diversified firms, which means that - 20% - investors believe that the value of conglomerates is 20% less than the value of the sum of their parts. According to value-neutral diversification strategies, there are both ___ and ___ incentives to diversify - Internal.

The aim of this chapter is to provide an overview of ebook bank diversification into non-banking activities ebook on European conglomerates, while at the same time offering an update of studies on bank diversification.

The financial conglomerates’ journey can be split in two periods by using the late s as the cut off point.