The Anatomy of Bank Diversification

We use panel data from nine countries over the period 1996 to 2003 to test how revenue diversification in conjunction with increasing bank size affects bank value. Using a comprehensive framework for bank performance measurement, we find no evidence for a conglomerate discount, unlike studies concerned with industrial firms. Rather, revenue diversification increases bank profitability and is associated with higher market valuation. This performance effect does not depend on whether diversification was achieved through organic growth or through M&A activity. 1 We thank conference participants at the EFMA 2006 and the Banking Workshop, Münster for valuable comments. Of course, all errors are ours. 2 LMU Munich Institute for Finance & Banking, Ludwigstr. 28 RG/V, 80539 Munich, Germany. Email: [email protected], phone: +49 89 218