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Consolidation and Value Creation in the Insurance Industry: the Role of Governance

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Author Info
Narjess Boubakri
Georges Dionne
Thouraya Triki

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Abstract

We examine the long run performance of M&A transactions in the property-liability insurance industry. We specifically investigate whether such transactions create value for the bidders' shareholders and assess how corporate governance mechanisms affect such performance. Our results show that M&A create value in the long run as buy and hold abnormal returns are positive and significant after three years. While tender offers appear to be more profitable than mergers, our evidence does not support the conjecture that domestic transactions create more value than cross border transactions. Furthermore, positive returns are significantly higher for frequent acquirers and in countries where investor protection is better. Internal corporate governance mechanisms are also significant determinants of the performance of bidders.

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Publisher Info
Paper provided by CIRPEE in its series Cahiers de recherche with number 0626.

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Date of creation: 2006
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Handle: RePEc:lvl:lacicr:0626

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Related research
Keywords: Merger and acquisition; property-liability insurance; governance; value creation; performance of bidders;

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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies

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References listed on IDEAS
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  2. Estrella, Arturo, 2001. "Mixing and matching: Prospective financial sector mergers and market valuation," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2367-2392, December. [Downloadable!] (restricted)
  3. Kiymaz, Halil, 2004. "Cross-border acquisitions of US financial institutions: Impact of macroeconomic factors," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1413-1439, June. [Downloadable!] (restricted)
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  6. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February. [Downloadable!] (restricted)
  7. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April. [Downloadable!] (restricted)
  8. Allen N. Berger & J. David Cummins & Mary A. Weiss & Hongmin Zi, 2000. "Conglomeration Versus Strategic Focus: Evidence from the Insurance Industry," Center for Financial Institutions Working Papers 99-29, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  9. Moeller, Sara B. & Schlingemann, Frederik P., 2005. "Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 533-564, March. [Downloadable!] (restricted)
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  11. Yakov Amihud & Baruch Lev, 1981. "Risk Reduction as a Managerial Motive for Conglomerate Mergers," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 605-617, Autumn. [Downloadable!] (restricted)
  12. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January. [Downloadable!] (restricted)
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  14. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
    Other versions:
  15. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October. [Downloadable!] (restricted)
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