Optimal Capital Structure for a Property-Liability Insurer
AbstractTraditional finance studies have found that firm value is maximised at a mid-range level of leverage. This paper empirically tests the effect of leverage on firm value for property-liability insurers. We analysed an international data set of 96 insurers from 1992 to 2006 using two measures for firm value (price-to-earnings and market-to-book) and three measures of leverage (liabilities-to-equity, premiums-to-equity and surplus duration). We found that price-to-earnings at first increases with leverage, as measured by liabilities-to-equity and premiums-to-equity, but decreases past a certain point. Market-to-book exhibited a similar pattern for the premium-to-equity ratio but had a positive relationship with liabilities-to-equity and a negative relationship with surplus duration.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Issues and Practice.
Volume (Year): 37 (2012)
Issue (Month): 3 (July)
Contact details of provider:
Web page: http://www.palgrave-journals.com/
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).
If references are entirely missing, you can add them using this form.