Working Paper: NBER ID: w17660
Authors: Martin Goetz; Luc Laeven; Ross Levine
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 novel identification strategies based on the dynamic process of interstate bank deregulation, we find that exogenous increases in geographic diversity reduce BHC valuations. These findings are consistent with the view that geographic diversity makes it more difficult for shareholders and creditors to monitor firm executives, allowing corporate insiders to extract larger private benefits from firms.
Keywords: geographic diversification; bank holding companies; market valuation; agency problems
JEL Codes: G21; G34; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| geographic diversity (R12) | corporate insiders' private benefits (G34) |
| corporate insiders' private benefits (G34) | BHC valuations (G19) |
| geographic diversity (R12) | BHC valuations (G19) |
| deregulation (L51) | geographic diversity (R12) |
| deregulation (L51) | BHC valuations (G19) |