Seminar by Prof. Michael G. Jacobides, London Business School
Event details
| Date | 21.03.2016 |
| Hour | 12:00 › 13:30 |
| Speaker | Prof. Michael G. Jacobides, London Business School |
| Location | |
| Category | Conferences - Seminars |
"Scale, Scope and Performance Dynamics: A population study of the evolution of Bank Holding Companies and their performance changes, 1990-2014"
Michael G. Jacobides, London Business School and New York Fed
In this talk, Prof. Jacobides will present joint work with Nicola Cetorelli and Sam Stern of the New York Fed, on their analysis of a new database, which looks at the entire population of Bank Holding Companies in the US, from 1990 to 2014.
The last quarter-century has marked a drastic change in the nature of financial intermediation. Bank Holding Companies (BHC) have changed their scope, shifting from narrow financial institutions based in commercial banking to much broader corporate entities expanding into both financial and non-financial segments, from insurance, asset management, broker dealership or SIVs, to real estate companies, consulting, and energy and among others. But, what lies beneath this aggregate shift to a new type of BHC and a new business model for banks? And, what are the performance implications of banks’ change of scope?
This presentation provides early evidence from a new database, which has just been compiled by the authors, that covers the universe of all US-registered Bank Holding Companies and all their subsidiaries, wholly or partly owned, on a quarterly basis, from 1990 to 2014. Our evidence tracks the evolution of scope, complexity, organizational structure, M&A, mode of entry and exit by BHCs in each segment they operate on, as well as their performance in terms of risks and returns. In particular, we focus on the impact of changes in scope, presenting the large-scale first population-level study with scope as a key variable, regardless of sector. We consider not only entry into, but also exit from NAICS codes, so as to shed light to the dynamics of bank experimentation with new segments. We also look at the timing of adoption of new NAICS, comparing and contrasting early to late adopters, and consider the impact of “trendy” adoptions.
Unlike research on diversification which has looked at cross-sectional comparisons of narrow and broader corporate vehicles, our evidence allows us to drill down directly into the dynamics of how firms change their scope, and when. First, we consider the differences between “trailblazers” (ie, early adopters of new NAICS), and “laggards”, ie, the last quartile of the firms adopting a new segment. We find that trailblazers, over a two to four year period, benefit from their innovation in terms of ROA and ROE, more than laggards do. We also uncover systematic evidence to show that the profile of early movers differs from that of late movers; and find that early movers are three times more likely to expand via majority-owned subsidiaries than laggards, who prefer minority participations. Furthermore, laggards who opt for majority participations end up faring worse off in the three to five year horizon. We also examine the impact of exits on profitability and see that exits, even those by liquidating subsidiaries, tend to be positively correlated with profitability. We also find that trailblazers tend to both enter many more segments, and to exit more decisively and quickly than laggards, especially three years post-entry onwards.
Finally, our evidence considers how BHC which move closer to the “New Financial Intermedi-aries” archetype fare when compared to narrow, conservative BHC (in terms of scope), or banks which experiment with different configurations, and how these results change over time. Our database structure allows us to compare and contrast the growth years (1990-99), the boom years (2000-2007), the crisis years (2008-2010) and the new normal (2010-2014).
Please note: As this is an early draft, there will be no paper, but the slides will be available shortly before, and after the seminar upon request
Michael G. Jacobides, London Business School and New York Fed
In this talk, Prof. Jacobides will present joint work with Nicola Cetorelli and Sam Stern of the New York Fed, on their analysis of a new database, which looks at the entire population of Bank Holding Companies in the US, from 1990 to 2014.
The last quarter-century has marked a drastic change in the nature of financial intermediation. Bank Holding Companies (BHC) have changed their scope, shifting from narrow financial institutions based in commercial banking to much broader corporate entities expanding into both financial and non-financial segments, from insurance, asset management, broker dealership or SIVs, to real estate companies, consulting, and energy and among others. But, what lies beneath this aggregate shift to a new type of BHC and a new business model for banks? And, what are the performance implications of banks’ change of scope?
This presentation provides early evidence from a new database, which has just been compiled by the authors, that covers the universe of all US-registered Bank Holding Companies and all their subsidiaries, wholly or partly owned, on a quarterly basis, from 1990 to 2014. Our evidence tracks the evolution of scope, complexity, organizational structure, M&A, mode of entry and exit by BHCs in each segment they operate on, as well as their performance in terms of risks and returns. In particular, we focus on the impact of changes in scope, presenting the large-scale first population-level study with scope as a key variable, regardless of sector. We consider not only entry into, but also exit from NAICS codes, so as to shed light to the dynamics of bank experimentation with new segments. We also look at the timing of adoption of new NAICS, comparing and contrasting early to late adopters, and consider the impact of “trendy” adoptions.
Unlike research on diversification which has looked at cross-sectional comparisons of narrow and broader corporate vehicles, our evidence allows us to drill down directly into the dynamics of how firms change their scope, and when. First, we consider the differences between “trailblazers” (ie, early adopters of new NAICS), and “laggards”, ie, the last quartile of the firms adopting a new segment. We find that trailblazers, over a two to four year period, benefit from their innovation in terms of ROA and ROE, more than laggards do. We also uncover systematic evidence to show that the profile of early movers differs from that of late movers; and find that early movers are three times more likely to expand via majority-owned subsidiaries than laggards, who prefer minority participations. Furthermore, laggards who opt for majority participations end up faring worse off in the three to five year horizon. We also examine the impact of exits on profitability and see that exits, even those by liquidating subsidiaries, tend to be positively correlated with profitability. We also find that trailblazers tend to both enter many more segments, and to exit more decisively and quickly than laggards, especially three years post-entry onwards.
Finally, our evidence considers how BHC which move closer to the “New Financial Intermedi-aries” archetype fare when compared to narrow, conservative BHC (in terms of scope), or banks which experiment with different configurations, and how these results change over time. Our database structure allows us to compare and contrast the growth years (1990-99), the boom years (2000-2007), the crisis years (2008-2010) and the new normal (2010-2014).
Please note: As this is an early draft, there will be no paper, but the slides will be available shortly before, and after the seminar upon request
Practical information
- General public
- Free
Organizer
- College of Management of Technology