Panagiotis Dontis-Charitos

Does the Stock Market Compensate Banks for Diversifying into the Insurance Business

This paper explores a wide range of corporate restructurings, all available deals from wire services, in the banking and insurance sectors that led to bancassurance ventures. An event study methodology is employed to calculate excess returns on and around the deals’ announcement date. Using both univariate and multivariate analysis the paper finds bank driven mergers, deals size and regional categorization all triggering positive and significant market reactions. Unlike the univariate framework, multivariate analysis shows that geographic focus and language are not significant factors. The results also indicate that markets are indifferent with respect to bank withdrawals from the bank-insurance operations. Finally, Canadian, U.S. and European bank-insurance deals produce positive results, while Australasian bidders offer statistically insignificant equity returns.

Diversification, Size and Risk: the Case of Bank Acquisitions of Nonbank Financial Firms

We investigate the risk effects of bank acquisitions of insurance companies and securities firms between 1991 and 2012 using a newly constructed dataset of M&A deals. We examine risk changes before and after deal announcements by decomposing risk into systematic and idiosyncratic components. Subsequently, we investigate the relationship between risk and diversification by modelling the determinants of risks. We find that bank combinations with securities firms yield higher risks than combinations with insurance companies. Bank size is an important and consistent determinant of risk whereas diversification is not. Our results inform the continuing debate on diversification versus functional separation of bank activities.

A multi-country analysis of the 2007–2009 financial crisis: empirical results from discrete and continuous time models

In this article, we provide empirical evidence of the recent financial crisis over 2007–2009 using discrete time multivariate GARCH (MGARCH) models and continuous time modelling approaches. Using daily data for 14 countries, we investigate the return and volatility spillovers among the US and other international markets. The MGARCH results reveal positive return spillovers from the US to a number of markets, and volatility transmission is verified. The US market is prone to return and volatility transmission from a limited number of markets. The continuous time analysis finds evidence of feedback effects in some cases. Evidence shows that spillover effects intensified during the financial crisis.

Continuous and discrete time modelling of spillovers in equity and bond markets

In this paper we investigate the return and volatility spillovers among equity and bond markets in the UK, USA, Germany and Japan, using continuous time models and discrete time multivariate GARCH modelling methods. Using weekly data over the period 2001 to 2011, empirical evidence of uni- and/or bi-directional return and volatility spillovers is provided. The continuous time analysis finds evidence of feedback effects in some cases. The discrete time results provide weak evidence of return spillovers, while volatility transmission among the majority of equity and fixed income markets is verified. Evidence shows that some of these relationships change in the post-crisis period.

Bank Diversification and Financial Conglomerates in Europe

The aim of this chapter is to provide an overview of the bank diversification into non-banking activities focusing on European conglomerates, while at the same time offering an update of studies on bank diversification. The financial conglomerates’ journey can be split in two periods by using the late 1990s as the cut off point. The chapter starts by discussing the corporate structure of financial conglomerates and then presenting the driving forces behind the evolution of these heterogeneous institutions. Then it moves on to review the theoretical arguments behind the creation of these universal banks and supports the discussion by presenting the empirical findings on the effects of product diversification in the banking sector. Finally, the discussion delves into the evolution of bank diversification into non-banking activities, while offering key statistics and a summary of key regulatory reforms. The chapter concludes the discussion by laying out some aspects of modern financial markets that require further thought and could ignite new research.

The Impact of Internationalization on Zero Leverage: Evidence from the UK

Despite the increasing attention on the role of internationalization in firms’ capital structure decisions, and the increasing adoption of zero leverage policies by multinationals, no study attempts to explain the effect of multi-nationality on the zero leverage decision. This study explores the relationship between the level of internationalization and zero leverage using a large panel of UK companies, while controlling for various company-related factors. We find strong evidence that multi-nationality affects the propensity of firms to have zero leverage and that this decision is affected by industry specificities.

Are there return and volatility spillovers from major bank stocks to the national stock market in the UK

We investigate the return and volatility spillovers from major UK banks to Financial Times Stock Exchange 100 (FTSE 100) index using Gaussian estimation and continuous time models as well as discrete time multivariate GARCH (MGARCH) modelling approaches. Using daily, weekly and monthly data over the period December 1999–December 2010, which includes the recent 2007–2009 global financial crisis, empirical estimates of uni- and/or bi-directional return and volatility spillovers are provided. The bivariate MGARCH results reveal strong return spillovers from the FTSE to the banks, and no return spillover from the latter to the FTSE. Nevertheless, strong bi-directional volatility transmission is verified. The continuous time analysis provides mixed evidence of feedback effects over the different models.

Cross-Industry Product Diversification and Contagion in Risk and Return: The Case of Bank-Insurance Takeovers

We investigate the impact of domestic and international bank-insurance deals on the risk-return profiles of bidding banks, peer banks and peer insurers within a GARCH framework. We find that both announcing and non-announcing firms experience positive abnormal returns with the effect on insurer peers being larger and more gradual. These results establish the prevalence of intra- and inter-industry contagion and stand in contrast with studies documenting negative and/or insignificant results for bidders. Abnormal returns on bidder banks vary with leverage, relative size of the deal, growth opportunities, extent of bidder’s engagement in non-interest income activities, bidder-origin and bidder profitability. The overall risks of the bidders and peer firms decline following the bancassurance deals, with a larger component of the decline coming from idiosyncratic, rather than systematic risk. Risk and return contagion effects vary with the deal-size with larger deals demonstrating greater contagion. Our findings support the bancassurance phenomenon and the provision(s) of regulatory reforms, such as the Financial Services Modernization Act (1999).