Divestitures and the financial conglomerate excess value
We exploit a unique sample of the world largest financial conglomerates from 15 countries and we track their largest asset sales over the period 2005-2013, which encompasses the two last financial crises (US subprime lending 2008-2009 and European sovereign debt 2010-2011). We find that divestitures have an impact on financial conglomerate valuation and contribute to reduce the conglomerate discount, a result driven by sales of financial service assets. Commercial banking divestitures have a positive impact on excess value, whereas investment banking divestitures have a weak effect on market valuation. Selling assets unrelated to financial sector has a significant effect on conglomerate excess value only at times of financial crises. These results are robust to the inclusion of multiple control variables and alternative econometric model specifications. All together, these results cast doubts on the existence of large benefits in financial conglomerates from combining financial service activities as well as nonfinancial businesses, suggesting that certain divestiture programs will be value-enhancing. This study has implications both for financial conglomerates boards who might direct their strategies to downsize their firms, and for regulators to address issues related to financial stability.