Marc R. Saidenberg

Organizational Structure and the Diversification Discount: Evidence from Commercial Banking

We provide evidence on organizational structure and performance at bank holding companies (BHCs). First, we show that a BHCs member banks benefit from access to internal capital markets. Second, we ask if these benefits are best realized within loosely structured, decentralized organizations or more consolidated, centralized firms. We find that BHCs with many subsidiaries are less profitable and have lower q ratios than similar BHCs with fewer subsidiaries. However, because we study multi-unit firms in a single industry, our results suggest that the diversification discount reported in the corporate finance literature reflects not only industry diversification, but also organizational structure.