Bank Diversification and Valuation: International Evidence

| Publication date: 1 Sep 2014 | Theme: Britain & Finance | NIESR Author(s): Armstrong, A

Using a panel of the largest 800 banks from 31 OECD countries between 1998-2012 we investigate whether the diversity of financial institutions affects their valuations. That is whether banks with more diversified operations trade at a premium (reduce risk) or discount (are too complex). We look at both asset diversity and income diversity and price to book and Tobin's q as measures of value. Looking at the whole set we find that it is difficult to empirically verify the role of bank diversity on bank valuations. However, when banks are divided into small, medium and large banks we find that bank diversity may add value in the case of small banks but probably destroys it in the case of the largest banks.

Keyword tags: 
banking
valuation
evidence
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