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Institutional Ownership Stability and Risk Taking: Evidence from the Life-Health Insurance Industry

Author

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  • Jiang Cheng
  • Elyas Elyasiani
  • Jingyi (Jane) Jia

Abstract

We investigate the relationship between risk taking of life-health (LH) insurers and health (LH) insurers and stability of their institutional ownership within a simultaneous equation system model. Several results stability of their institutional ownership within a simultaneous equation system model. Several results are obtained. First, stable institutional ownership is associated with lower total risk of LH insurers, supporting the prutudent-man law hypothesis. Second, when investors are sorted in terms of stringency of the prudent-man restrictions, their negative effect on risk holds for all, except insurance companies, as owners of LH insurers. Third, large institutional owners do not raise the riskiness of the investee-firms, as proposed by the large shareholder hypothesis. Fourth, institutional owners reduce riskiness of the investees through reduction their leverage and underwriting risks, though they increase their investment risk, in which they have greater expertise. These findings have important regulatory, managerial and investment implications.

Suggested Citation

  • Jiang Cheng & Elyas Elyasiani & Jingyi (Jane) Jia, 2011. "Institutional Ownership Stability and Risk Taking: Evidence from the Life-Health Insurance Industry," NFI Working Papers 2011-WP-14, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfiwps:2011-wp-14
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    4. Pier Luigi Marchini & Veronica Tibiletti & Alice Medioli & Gianluca Gabrielli, 2021. "Corporate Ownership Structure as a Determinant of “Risk Taking”: Insights from Italian Listed Companies," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(11), pages 138-138, July.
    5. Oleg Deev & Nino Khazalia, 2017. "Corporate Governance, Social Responsibility and Financial Performance of European Insurers," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(6), pages 1873-1888.
    6. John A. Tatom & Terrie Troxel, 2011. "A Report to the Federal Insurance Office," NFI Policy Briefs 2011-PB-07, Indiana State University, Scott College of Business, Networks Financial Institute.
    7. Bijapur, Mohan & Croci, Manuela & Zaidi, Rida, 2012. "Do Asset Regulations Impede Portfolio Diversification? Evidence from European Life Insurance Funds," MPRA Paper 54265, University Library of Munich, Germany.
    8. Vo, Xuan Vinh, 2016. "Foreign investors and corporate risk taking behavior in an emerging market," Finance Research Letters, Elsevier, vol. 18(C), pages 273-277.
    9. Gaganis, Chrysovalantis & Liu, Liuling & Pasiouras, Fotios, 2015. "Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation," Journal of Financial Stability, Elsevier, vol. 18(C), pages 55-77.
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    12. Eling, Martin & Jia, Ruo & Schaper, Philipp, 2017. "Get the Balance Right: A Simultaneous Equation Model to Analyze Growth, Profitability, and Safety," Working Papers on Finance 1716, University of St. Gallen, School of Finance.
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    14. Rubio-Misas, María, 2020. "Ownership structure and financial stability: Evidence from Takaful and conventional insurance firms," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
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    More about this item

    Keywords

    Life Insurance; Institutional Ownership; Monitoring; Risk Taking;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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