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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.
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We demonstrate how to estimate a model of product demand and oligopoly pricing when products are multi-dimensionally differentiated. We provide an empirical counterpart to recent theoretical work on product differentiation. Using specifications informed by economic theory, we simultaneously estimate a demand system and price-cost margins for products differentiated in many dimensions.
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This paper investigates the divisional investment policies of diversified firms. We find that investment of the smallest division of diversified firms is significantly related to the cash flow of the other segments. We then show that the smallest division's investment is more sensitive to the cash flow of the other divisions for firms where one expects aggregate investment to be related to cash flow also, namely low q firms and firms with high leverage. This and other evidence we provide is consistent with what we call the bureaucratic rigidity hypothesis. This hypothesis states that relative allocations of investment funds in diversified firms are sticky. We fail to find support for the view that diversified firms allocate more funds to divisions in industries with better investment opportunities
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