Diversification, size and risk: The case of bank acquisitions of nonbank financial firms

Casu, B., Dontis-Charitos, P., Williams, J. and Staikouras, S.K. 2016. Diversification, size and risk: The case of bank acquisitions of nonbank financial firms. European Financial Management. 22 (2), p. 235–275. doi:10.1111/eufm.12061

TitleDiversification, size and risk: The case of bank acquisitions of nonbank financial firms
AuthorsCasu, B., Dontis-Charitos, P., Williams, J. and Staikouras, S.K.
Abstract

We investigate the risk effects of bank acquisitions of insurance companies and securities firms between 1991 and 2012 using a newly constructed dataset of M&A deals. We examine risk changes before and after deal announcements by decomposing risk into systematic and idiosyncratic components. Subsequently, we investigate the relationship between risk and diversification by modelling the determinants of risks. We find that bank combinations with securities firms yield higher risks than combinations with insurance companies. Bank size is an important and consistent determinant of risk whereas diversification is not. Our results inform the continuing debate on diversification versus functional separation of bank activities.

KeywordsBanks
nonbank financial firms
financial conglomerates
diversification
risk decomposition
determinants of risk
JournalEuropean Financial Management
Journal citation22 (2), p. 235–275
ISSN1468-036X
Year2016
PublisherWiley
Digital Object Identifier (DOI)doi:10.1111/eufm.12061
Web address (URL)http://dx.doi.org/10.1111/eufm.12061
Publication dates
Published in printMar 2016
Published17 Mar 2015

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