Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 30075
The Impact of Corporate Governance on Risk Taking in European Insurance Industry

Authors: Francesco Venuti, Simona Alfiero

Abstract:

The aim of this paper is to develop an empirical research on the nature and consequences of corporate governance on Eurozone Insurance Industry risk taking attitude. More particularly, we analyzed the effect of public ownership on risk taking with respect to privately held Insurance Companies. We also analyzed the effects on risk taking attitude of different degrees of ownership concentration, directors compensation, and the dimension/diversity of the Board of Directors. Our results provide quite strong evidence that, coherently with the Agency Theory, publicly traded insurance companies with more concentrated ownership are less risky than the corresponding privately held.

Keywords: Agency theory, corporate governance, insurance companies, risk taking.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1338768

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 2077

References:


[1] H. Abdullah, B. Valentine, “Fundamental and ethics theories of corporate governance”, in Middle Eastern Finance and Economics Journal, 2009.
[2] B. Ballou, D.L. Heitger, D. Stoel, “How Boards of Directors Perceive Risk Management Information”, in Management Accounting Quarterly, vol. 12, 2001.
[3] E. G. Baranoff, S. Papadopoulos, T. W. Sager, “Capital and Risk Revisited: A Structural Equation Model Approach for Life Insurers”, in Journal of Risk and Insurance, 2007, pp. 653–681.
[4] E. G. Baranoff, T. W. Sager T. W., “Do Life Insurers' Asset Allocation Strategies Influence Performance within the Enterprise Risk Framework?”, Geneva Papers on Risk and Insurance, 2009, pp. 242– 259.
[5] K. H. Borch, H. Loubergé, “Risk, information and insurance”, Springer Science & Business Media, 1990.
[6] N. Boubakri, “Corporate Governance and Issues From The Insurance Industry”, in Journal of Risk and Insurance, 2011, pp. 501–518.
[7] J. Cheng, E. Elyasiani, J. Jia, “Institutional Ownership Stability and Risk Taking: Evidence from the Life-Health Insurance Industry”, in Journal of Risk and Insurance, 2011, 78(3): 609-641.
[8] S. Cheng, “Board size and the variability of corporate performance”, in Journal of Financial Economics, 2008, pp. 157-176.
[9] M. H. Cho, “Ownership structure, investment and the corporate value: an empirical analysis”, in Journal of Financial Economics, 1998, 47(1), pp. 103-121.
[10] S. Claessens, S. Djankov, J. Fan, L. Lang, “Disentangling the incentive and entrenchment effects of large shareholdings”, in Journal of Finance, 2002, 57(6), pp. 2741-71.
[11] C.R. Cole,E. He, K.A. McCullough, D.W. Sommer, “Separation of Ownership and Management: Implications for Risk-Taking Behavior”, in Risk Management and Insurance Review, 2011, 14(1): 49–71.
[12] COSO - Committee of Sponsoring Organizations of the Treadway Commission, “Enterprise Risk Management – Integrated Framework”, September 2004, New York.
[13] COSO - Committee of Sponsoring Organizations of the Treadway Commission, “Effective Enterprise Risk Oversight – The Role of the Board of Directors”, New York, 2009.
[14] J. E. Core, R. W. Holthausen, D. F. Larcker, “Corporate Governance, Chief Executive Officer Compensation, and Firm Performance”, in Journal of Financial Economics, 1999, 51(3), pp. 371–406.
[15] J. D. Cummins, D. W. Sommer, “Capital and Risk in Property-Liability Insurance Markets”, in Journal of Banking & Finance, 1996, 20(6): 1069–1092.
[16] D. R. Dalton, C. M. Dalton, “Integration Of Micro And Macro Studies On Governance Research: CEO Duality, Board Composition And Financial Performance”, in Journal of Management, 2011, 37(2), pp. 404-411.
[17] D. Denis, J. McConnell, “Introduction To International Corporate Governance”, in “Governance: an international perspective”, vol. I, London, Edward Elgar Publishing, 2005.
[18] M. Eling, S. Marek, “Corporate Governance and Risk Taking: Evidence from the U.K. and German Insurance Markets”, University of St. Gallen, Working Papers on Risk Management and Insurance, n. 103, 2011
[19] E. F. Fama, M.C. Jensen, “Separation Of Ownership And Control”, in Journal of Law & Economics, 1983, 26(2), pp. 301-325.
[20] J. Farinha, “Corporate Governance: A Review Of The Literature”, Working Paper, University of Porto, 2003.
[21] J. Farinha, “Dividend Policy, Corporate Governance And The Managerial Entrenchment Hypothesis: An Empirical Analysis”, in Journal of Business Finance and Accounting, 2003, pp. 1173-1209.
[22] K. A. Farrell, A. Hersch, “Additions To Corporate Boards: The Effect Of Gender”, in Journal of Corporate Finance, 2005, 11(1-2), pp. 85– 106.
[23] M. Grace, R. Klein, “Insurance regulation: the need for policy reform”, Working Paper, Georgia State University, 2008.
[24] E. Grace, “Contracting Incentives and Compensation for Property- Liability Insurer Executives”, in Journal of Risk and Insurance, 2004, 71(2), pp. 285–307.
[25] S. R. Gray, A. Cannella, “The Role of Risk in Executive Compensation”, in Journal of Management, 1997, 23(4), pp. 517–540.
[26] C. Himmelberg, G. Hubbard, D. Palia, “Understanding The Determinants Of Managerial Ownership And The Link Between Ownership And Performance”, in Journal of Financial Economics, 1999, 53(3), pp. 353-384.
[27] M. Jensen, W. Meckling, “Theory Of The Firm: Managerial Behaviour, Agency Costs And Ownership Structure”, in Journal of Financial Economics, 1976, pp. 305-360.
[28] R. La Porta, F. Lopez-de-Silanes, A. Shleifer, R.W. Vishny, “Investor protection and corporate valuation”, in Journal of Finance, 2002, 57(3), pp. 1147-1170.
[29] Y. Lai, W.C. Lin, “Corporate Governance and the Risk-taking behavior in the Property/Liability Insurance Industry”, Working Paper, Taiwan University, 2008.
[30] M. Lipton, D. A. Neff, A. R. Brownstein, S .A. Rosenblum, D. Emmerich, S. L. Fain, “Risk Management and the Board of Directors”, in Bank and Corporate Governance Law Reporter, 2011, vol. 45(6), pp. 793-799.
[31] M. Lipton, “Risk Management and the Board of Directors”, in The Harvard Law School Forum on Corporate Governance and Financial Regulation, 2009, December 17, pp. 1-13.
[32] M. Maingot, T. Quon, D. Zéghal, “An Analysis Of The Effects Of The Financial Crisis On Enterprise Risk Management In The Canadian Financial Sector”, in Journal of Finance and Risk Perspectives, 2014, Vol. 3(2) pp. 10-26.
[33] M. Marimuthu, I. Koladaisamy, “Ethnic And Gender Diversity In Board Of Directors And Their Relevance To Financial Performance Of Malaysian Companies”, in Journal of Sustainable Development, 2009, 2(3), pp. 139-148.
[34] M. Marimuthu, I. Koladaisamy, “Demographic Diversity In Top Level Management And Its Implications On Firms Financial Performance. An Empirical Discussion”, in International Journal of Business and Management, 2009, 4(6), pp. 176-188.
[35] D. Mayers, W. Smith, “Compensation and Board Structure: evidence from insurance industry”, in Journal of Risk and Insurance, 2010, 77(2), pp. 297-327.
[36] F. Modigliani, M. Miller, “The Cost of Capital, Corporation Finance and the Theory of Investment”, in The American Economic Review, 1958, 48(3), pp. 261–297.
[37] N. Najjar, “The Impact Of Corporate Governance On The Insurance Firm’s Performance In Bahrain”, in International Journal of Learning & Development, 2012
[38] J. Piotroski, D. Roulstone, “The influence of analysts, institutional investors and insiders on the incorporation of market, industry and firm specific information into stock prices”, in Accounting Review, 2004, pp. 1119-1151.
[39] J. Podder, M. Skully, B. Kym, “Incentives and risk taking: evidence from listed US insurance companies”, Working Paper, Monash University, 2013.
[40] R. K. Sah, J. Stiglitz, “The architecture of Economic Systems: Hierarchies and Polyarchies”, in American Economic Review, 1986, 76, pp. 716-727.
[41] R. K. Sah, J. Stiglitz, “The quality of Managers in Centralized Versus Decentralized Organizations”, in Quarterly Journal of Economics, 1991, pp. 289-295.
[42] A. U. Sanda, T. Garba, A. S. Mikailu, “Board Independence And Firm Financial Performance, Evidence From Nigeria”, Centre for the Study of African Economics (CSAE) Conference 2008, University of Oxford, March, 2008.
[43] SEC, Annual Report and Accounts 2004, Abuja Nigeria.
[44] N. P. Swartz, S. Firer, “Board structure and intellectual capital performance in South Africa”, in Meditari Accountancy Research, 2005, vol. 13(2), pp. 145-166.
[45] S. Tzafrir, “A universalistic perspective for explaining the relationship between HRM practices and firm performance at different points in time”, in Journal of Managerial Psychology, vol. 21 (2), 2005, pp. 109- 130.
[46] S. M. Williams, “Diversity in corporate governance and its impact on intellectual capital performance in emerging economy”, Discussion Paper N. 5, Corporate Governance and Intellectual Capital Archive, Singapore Management University, 2000.