Conglomeration versus Strategic Focus: Evidence from the Insurance Industry

By Allen N. Berger, J. Cummins, Mary A. Weiss, Hongmin Zi. 2000

263 citations recorded by the source corpus.

We provide evidence on the validity of the conglomeration hypothesis versus the strategic focus hypothesis for financial institutions using data on U.S. insurance companies. 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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/fe3230dc8afc136c50bf8f63762b7b1aa48c359f

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Citations in the corpus

Economies of scope in financial services: A DEA efficiency analysis of the US insurance industry. (2010, unknown): “(Berger et al., 2000).”
Frontier Efficiency Methodologies to Measure Performance in the Insurance Industry: Overview, Systematization, and Recent Developments (2010, methodology): “The value-added approach (also called production approach; see Grace/Timme, 1992; Berger et al., 2000) counts outputs as important if they contribute a sig- nificant added value based on operating cost allocations (see Berger et al., 2000).”
Efficiency in the international insurance industry: A cross-country comparison (2010, methodology): “…most studies on efficiency in the insurance industry, we use the value-added approach (also called the production approach; see Grace/Timme, 1992; Berger et al., 2000) to determine the outputs.3 We thus distinguish between the three main services provided by insurance…”
The Effects of Focus versus Diversification on Bank Performance: Evidence from Chinese Banks (2010, methodology): “Berger et al. (2000a) examine the efficiency of cross-border consolidations of financial institutions from France, Germany, Spain, the U.K., and the U.S., and find that domestic banks have higher profit efficiency than do foreign banks, except for US-based foreign 8 banks.”
The effect of organizational structure on efficiency: Evidence from the Spanish insurance industry (2004, background): “Evidence of maintained efficiency differences over time in US insurance and banking are provided by Cummins et al. (1999) and Berger et al. (2000a).”