Diversification, Size and Risk: the Case of Bank Acquisitions of Nonbank Financial Firms

Casu, B., Dontis-Charitos, P., Staikouras, S. & Williams, J. (2016). Diversification, Size and Risk: the Case of Bank Acquisitions of Nonbank Financial Firms. European Financial Management, 22(2), pp. 235-275. doi: 10.1111/eufm.12061

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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.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Casu, B., Dontis-Charitos, P., Staikouras, S. and Williams, J. (2016), Diversification, Size and Risk: the Case of Bank Acquisitions of Nonbank Financial Firms*. Eur Financial Management, 22: 235–275., which has been published in final form at http://dx.doi.org/10.1111/eufm.12061. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Uncontrolled Keywords: Banks; nonbank financial firms; financial conglomerates; diversification; risk decomposition; determinants of risk
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/15687

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