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Mr. Luc Laeven, Mr. Martin R. Goetz, and Mr. Ross Levine

) . Drucker and Puri (2005) find that conglomerates that combine lending and underwriting activities tend to charge lower fees. Rather than attempting to measure costs, margins, idiosyncratic risk, and agency frictions directly, we assess the net effect of BHC diversity on q . More generally, the purpose of this paper is to identify and estimate the net effect of diversification on firm valuation and not to examine the precise nature of the underlying channels of this effect. Examining the geographic diversity of U.S. BHCs in the 1980s and 1990s informs current debates

Mr. Luc Laeven, Mr. Martin R. Goetz, and Mr. Ross Levine
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.
Mr. Luc Laeven, Mr. Martin R. Goetz, and Mr. Ross Levine