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Conglomeration versus strategic focus: evidence from the insurance industry

Author

Listed:
  • Allen N. Berger
  • J. David Cummins
  • Mary A. Weiss
  • Hongmin Zi

Abstract

We use data on U.S. insurance companies to examine the validity of the conglomeration hypothesis versus the strategic focus hypothesis for financial institutions. We distinguish between the hypotheses using profit scope economies, which measures the relative efficiency of joint versus specialized production, taking both costs and revenues into account. The results suggest that the conglomeration hypothesis dominates for some types of financial service providers and the strategic focus hypothesis dominates for other types. This may explain the empirical puzzle of why joint producers and specialists both appear to be competitively viable in the long run.

Suggested Citation

  • Allen N. Berger & J. David Cummins & Mary A. Weiss & Hongmin Zi, 1999. "Conglomeration versus strategic focus: evidence from the insurance industry," Finance and Economics Discussion Series 1999-40, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1999-40
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    More about this item

    Keywords

    Insurance industry; Financial services industry; Consolidation and merger of corporations;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L89 - Industrial Organization - - Industry Studies: Services - - - Other

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