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An Investigation Into the Diversification-Performance Relationship in the U.S. Property-Liability Insurance Industry

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  • B. Elango
  • Yu-Luen Ma
  • Nat Pope

Abstract

This article investigates the relationship between product diversification and firm performance in the U.S. property-liability insurance industry using data over the 1994 through 2002 time period. Using various measures of product diversification and firm performance, we find that the extent of product diversification shares a complex and nonlinear relationship with firm performance. Our findings suggest that performance benefits associated with product diversification are contingent upon an insurer's degree of geographic diversification. Robustness tests using subsamples and market returns for public firms show consistent results. Copyright (c) The Journal of Risk and Insurance, 2008.

Suggested Citation

  • B. Elango & Yu-Luen Ma & Nat Pope, 2008. "An Investigation Into the Diversification-Performance Relationship in the U.S. Property-Liability Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(3), pages 567-591.
  • Handle: RePEc:bla:jrinsu:v:75:y:2008:i:3:p:567-591
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    Cited by:

    1. Patricia H. Born & Barbara Klimaszewski-Blettner, 2013. "Should I Stay or Should I Go? The Impact of Natural Disasters and Regulation on U.S. Property Insurers’ Supply Decisions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(1), pages 1-36, March.
    2. Biener, Christian & Eling, Martin & Jia, Ruo, 2017. "The structure of the global reinsurance market: An analysis of efficiency, scale, and scope," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 213-229.
    3. Augusto Felício, J. & Rodrigues, Ricardo, 2015. "Organizational factors and customers' motivation effect on insurance companies' performance," Journal of Business Research, Elsevier, pages 1622-1629.
    4. Che, Xin & Liebenberg, Andre P., 2017. "Effects of business diversification on asset risk-taking: Evidence from the U.S. property-liability insurance industry," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 122-136.
    5. Cummins, J. David & Weiss, Mary A. & Xie, Xiaoying & Zi, Hongmin, 2010. "Economies of scope in financial services: A DEA efficiency analysis of the US insurance industry," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1525-1539, July.
    6. Stoyanova, Rayna & Gründl, Helmut, 2013. "Solvency II: A driver for mergers and acquisitions?," ICIR Working Paper Series 13/13, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    7. Biener, Christian & Eling, Martin & Jia, Ruo, 2016. "The Roles of Industry Idiosyncrasy, Cost Efficiency, and Risk in Internationalization: Evidence from the Insurance Industry," Working Papers on Finance 1602, University of St. Gallen, School of Finance.
    8. J. Outreville, 2010. "Internationalization, Performance and Volatility: The World Largest Financial Groups," Journal of Financial Services Research, Springer;Western Finance Association, pages 115-134.
    9. Elango, B. & Pattnaik, Chinmay, 2013. "Response strategies of local firms to import competition in emerging markets," Journal of Business Research, Elsevier, pages 2460-2465.
    10. Korinek, Anton, 2011. "Systemic risk-taking: amplification effects, externalities, and regulatory responses," Working Paper Series 1345, European Central Bank.
    11. Yin Choo Yap, 2009. "The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry," Asia-Pacific Journal of Risk and Insurance, De Gruyter, pages 1-29.
    12. repec:pal:gpprii:v:42:y:2017:i:3:d:10.1057_s41288-017-0045-4 is not listed on IDEAS
    13. Chen-Ying Lee, 2014. "The effects of firm specific factors and macroeconomics on profitability of property-liability insurance industry in Taiwan," Journal of Business & Management (COES&RJ-JBM), , vol. 2(1), pages 221-227, January.

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