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The financial leverage of Insurers subject to price regulation: evidence from Canada

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Author Info
Strauss, Jason David

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Abstract

The 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.

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File URL: http://mpra.ub.uni-muenchen.de/10845/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10845.

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Date of creation: 30 Sep 2008
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Handle: RePEc:pra:mprapa:10845

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Related research
Keywords: Price Regulation; Insurance; Financial Leverage; Capital Structure; Bankruptcy;

Find related papers by JEL classification:
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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References listed on IDEAS
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.:
  1. 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. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. 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, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
  4. 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, vol. 21(1), pages 79-100, February. [Downloadable!] (restricted)
  5. Taggart, Robert A, Jr, 1985. "Effects of Regulation on Utility Financing: Theory and Evidence," Journal of Industrial Economics, Blackwell Publishing, vol. 33(3), pages 257-76, March. [Downloadable!] (restricted)
  6. Yossef Spiegel & Daniel F. Spulber, 1994. "The Capital Structure of a Regulated Firm," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 424-440, Autumn. [Downloadable!] (restricted)
  7. Robert A. Taggart, Jr., 1985. "Effects of Regulation on Utility Financing: Theory and Evidence," NBER Working Papers 0866, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Taggart, Robert A, Jr, 1981. "Rate-of-Return Regulation and Utility Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 36(2), pages 383-93, May. [Downloadable!] (restricted)
  9. Robert L. Hagerman & Brian T. Ratchford, 1978. "Some Determinants of Allowed Rates of Return on Equity to Electric Utilities," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 46-55, Spring. [Downloadable!] (restricted)
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