The financial leverage of Insurers subject to price regulation: evidence from Canada
AbstractThe variation in the degree of price regulation in the property-liability insurance market in Canada varies across time and space, creating an opportunity to test a recurring theory in regulatory economics: that price regulated firms have higher levels of financial leverage. Using an instrumental variable for the stringency of price-regulation, this paper utilizes a panel data set of Canadian property-liability insurers over ten years of time, 1997-2006. The results support the theory but do not conclude on whether the increase in financial leverage is a strategic decision or a natural reaction to worsening business conditions brought-on by price-regulation.
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.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10845.
Date of creation: 30 Sep 2008
Date of revision:
Price Regulation; Insurance; Financial Leverage; Capital Structure; Bankruptcy;
Find related papers by 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
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-CFN-2008-10-07 (Corporate Finance)
- NEP-IAS-2008-10-07 (Insurance Economics)
- NEP-REG-2008-10-07 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert Klein & Richard Phillips & Wenyan Shiu, 2002. "The Capital Structure of Firms Subject to Price Regulation: Evidence from the Insurance Industry," Journal of Financial Services Research, Springer, Springer, vol. 21(1), pages 79-100, February.
- Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
- Taggart, Robert A, Jr, 1985. "Effects of Regulation on Utility Financing: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 33(3), pages 257-76, March.
- Taggart, Robert A, Jr, 1981. "Rate-of-Return Regulation and Utility Capital Structure Decisions," Journal of Finance, American Finance Association, American Finance Association, vol. 36(2), pages 383-93, May.
- Robert A. Taggart, Jr., 1982. "Effects of Regulation on Utility Financing: Theory and Evidence," NBER Working Papers 0866, National Bureau of Economic Research, Inc.
- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, Elsevier, vol. 13(2), pages 187-221, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.