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Corporate Risks and Property Insurance: Evidence From the People's Republic of China

Author

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  • Hong Zou
  • Mike B. Adams
  • Mike J. Buckle

Abstract

Using panel data (1997-1999) for 235 publicly listed companies in the People's Republic of China, this study empirically tests the linkage between corporate risks and the decision to purchase property insurance and its financial extent. To achieve these objectives, we first estimate a probit insurance participation decision model and then a fixed-effects insurance volume decision model with Heckman's sample selection correction. Our results indicate that the managerial decision to purchase property insurance is positively related to company size and insolvency risks. By contrast, the amount of property insurance purchased is positively related to systematic risks but negatively related to insolvency and unsystematic risks and company size. We find that the amount of property insurance used by Chinese companies can also be affected by other factors (e.g., the cash flow constraints). In addition, the decision to purchase property insurance and the financial extent to which it is used varies among Chinese companies according to their geographical location. However, state ownership does not appear to be an important determinant of the purchase of property insurance by Chinese publicly listed companies. Copyright 2003 The Journal of Risk and Insurance.

Suggested Citation

  • Hong Zou & Mike B. Adams & Mike J. Buckle, 2003. "Corporate Risks and Property Insurance: Evidence From the People's Republic of China," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(2), pages 289-314.
  • Handle: RePEc:bla:jrinsu:v:70:y:2003:i:2:p:289-314
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    Citations

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    Cited by:

    1. Andreas Klasen, 2014. "Export Credit Guarantees and the Demand for Insurance," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 15(3), pages 26-33, August.
    2. repec:bla:jrinsu:v:84:y:2017:i:2:p:599-629 is not listed on IDEAS
    3. Agusman, Agusman & Monroe, Gary S. & Gasbarro, Dominic & Zumwalt, J.K., 2008. "Accounting and capital market measures of risk: Evidence from Asian banks during 1998-2003," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 480-488, April.
    4. Erwann Michel-Kerjan & Paul A. Raschky & Howard C. Kunreuther, 2009. "Corporate Demand for Insurance: An Empirical Analysis of the U.S. Market for Catastrophe and Non-Catastrophe Risks," Working Papers 2009-10, Faculty of Economics and Statistics, University of Innsbruck.
    5. Jiang, Wei & Adams, Mike & Jia-Upreti, Joy, 2012. "Does managerial entrenchment motivate the insurance decision?," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 117-128.
    6. Aunon-Nerin, Daniel & Ehling, Paul, 2008. "Why firms purchase property insurance," Journal of Financial Economics, Elsevier, vol. 90(3), pages 298-312, December.
    7. Joy Jia & Mike Adams & Mike Buckle, 2012. "Insurance and ownership structure in India’s corporate sector," Asia Pacific Journal of Management, Springer, vol. 29(1), pages 129-149, March.
    8. repec:bla:acctfi:v:57:y:2017:i::p:117-145 is not listed on IDEAS
    9. J. François Outreville, 2011. "The relationship between insurance growth and economic development - 80 empirical papers for a review of the literature," ICER Working Papers 12-2011, ICER - International Centre for Economic Research.
    10. repec:eee:ecosys:v:41:y:2017:i:2:p:179-202 is not listed on IDEAS
    11. repec:bla:jrinsu:v:83:y:2016:i:4:p:849-876 is not listed on IDEAS
    12. Guo, Feng & Huang, Ying Sophie, 2013. "Identifying permanent and transitory risks in the Chinese property insurance market," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 689-704.
    13. Grzegorz Strupczewski & Michal Thlon & Kamil Fijorek, 2016. "Corporate Insurance Versus Risk Retention: An Empirical Analysis of Medium and Large Companies in Poland," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 41(4), pages 626-649, October.

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