Universal banks and stock‐market reaction

Abstract

PurposeThe purpose of this paper is to investigate the interface between the banking and insurance sectors. Using capital market data, the paper aims to discover any significant equity returns around the announcement date of these bank‐insurance interfaces.Design/methodology/approachThe analysis employs an event study methodology to evaluate the equity performance of these institutions. The empirical findings are based on well‐known financial intermediaries taken from an international sample.FindingsThe magnitude and sign of equity returns appear to differ among the cases examined. Some firms exhibit considerable abnormal returns, while others remain passive to any corporate restructuring revelation, or even undrape stock market losses. In many cases, the latter is associated with the overall economic environment, and/or with investments that are not compatible with the general banking philosophy of “fast growth within short‐term horizons.” Based on equity returns, the bank‐insurance interface seems to be the most preferable business restructuring; while insurance divestments and horizontal mergers, among financial intermediaries, do not perform as profitably as expected.Originality/valueThe paper will be of value to those interested in capital markets with emphasis on universal banking and insurance. It is suitable for academics as well as practitioners.