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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Conglomeration Versus Strategic Focus: Evidence from the Insurance Industry
Allen N. Berger, J. David Cummins, Mary A. Weiss, and 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 finanical 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.

Keywords: Insurance, conglomeration, focus, mergers, scope economies

Full paper (4563 KB PDF)

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Last update: September 29, 1999