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Economies of scope in financial services: A DEA efficiency analysis of the US insurance industry

Title
Economies of scope in financial services: A DEA efficiency analysis of the US insurance industry
Authors
Cummins J.D.Weiss M.A.Xie X.Zi H.
Ewha Authors
지홍민
SCOPUS Author ID
지홍민scopus
Issue Date
2010
Journal Title
Journal of Banking and Finance
ISSN
0378-4266JCR Link
Citation
vol. 34, no. 7, pp. 1525 - 1539
Indexed
SSCI; SCOPUS WOS scopus
Abstract
This paper investigates economies of scope in the US insurance industry over the period 1993-2006. We test the conglomeration hypothesis, which holds that firms can optimize by diversifying across businesses, versus the strategic focus hypothesis, which holds that firms optimize by focusing on core businesses. We analyze whether it is advantageous for insurers to offer both life-health and property-liability insurance or to specialize in one major industry segment. We estimate cost, revenue, and profit efficiency utilizing data envelopment analysis (DEA) and test for scope economies by regressing efficiency scores on control variables and an indicator for strategic focus. Property-liability insurers realize cost scope economies, but they are more than offset by revenue scope diseconomies. Life-health insurers realize both cost and revenue scope diseconomies. Hence, strategic focus is superior to conglomeration in the insurance industry. © 2010 Elsevier B.V.
DOI
10.1016/j.jbankfin.2010.02.025
Appears in Collections:
경영대학 > 경영학전공 > Journal papers
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