[Markus Holzhäuser, E-Finance Lab]

This paper examines the performance of U.S. bank holding companies between 1990 and 2004 following a strong change in corporate diversification in a long-term performance study. The diversification is measured using a Herfindahl index. Banks with a strong change in diversification show significant improvements in operating performance over a three year period after the event. This performance enhancement is effectuated by a lower cost-income-ratio and a changed asset mix. Additionally, the market valuation measured as price/book of the banks increase significantly.