Market values and efficiency in US insurer acquisitions and divestitures
Purpose - The purpose of this paper is to determine the market-value relevance of frontier efficiency scores and to test hypotheses from corporate control and production theory by analyzing the market response to US property–liability (P–L) insurer acquisitions and divestitures. Design/methodology/approach -Cost and revenue efficiencies are estimated based on accounting data for US P–L insurers using data envelopment analysis. The market-value response to acquisitions and divestitures is estimated using a standard market model event study. Regression analysis is used to measure the relationship between abnormal returns (dependent variable) and efficiency (independent variable), along with a set of control variables. Findings -The results show that acquirers, targets and divesting firms all have significant positive abnormal returns around announcement dates. We also find that efficient acquirers and targets have higher cumulative abnormal returns (CAR) but inefficient divesting firms have higher CARs. Research limitations/implications - The findings are consistent with insurance acquisitions and divestitures being driven primarily by value-maximizing motivations, consistent with corporate control and production theory. Practical implications -Frontier efficiency scores based on accounting data provide value-relevant information for insurance managers. Originality/value -This is one of only a few papers that relate frontier efficiency to market values and is the first paper to do this for the insurance industry. It is also one of only two existing papers that analyze the value relevance of efficiency scores in the context of mergers and acquisitions.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 35 (2009)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=mf Email:
When requesting a correction, please mention this item's handle: RePEc:eme:mfipps:v:35:y:2009:i:2:p:128-155. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If references are entirely missing, you can add them using this form.