IDEAS home Printed from https://ideas.repec.org/a/ffe/journl/v8y2011i1p17-42.html
   My bibliography  Save this article

Hedging with Derivatives and Value Creation : an Empirical Examination in the Insurance Industry

Author

Listed:
  • Luis Otero González, Sara Fernández López, Onofre Martorell Cunill

Abstract

This paper aims to analyze the reasons why insurance companies make the decision to hedge their corporate risk through derivatives, and to identify the variables that determine hedging volume in the context of the agency theory and maximization of firm value. The empirical study is based on data provided by 28 Spanish life insurers. Apart from being a pioneering work in the Spanish insurance industry, this paper also includes several variables that have not been taken into account in previous studies. The results indicate that hedging decision and volume are positively related to the company’s size, leverage and interest rate exposure. We also find that the type of product is important in the hedging decision. Finally, companies that use derivatives have a great return on assets that suggest a relationship between hedging decision and value creation.

Suggested Citation

  • Luis Otero González, Sara Fernández López, Onofre Martorell Cunill, 2011. "Hedging with Derivatives and Value Creation : an Empirical Examination in the Insurance Industry," Frontiers in Finance and Economics, SKEMA Business School, vol. 8(1), pages 17-42, April.
  • Handle: RePEc:ffe:journl:v:8:y:2011:i:1:p:17-42
    as

    Download full text from publisher

    File URL: http://www.ffe.esc-lille.com/papers/Vol8-1ms213Lopez.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    derivatives; risk management; value creation; life insurer; logit; Tobit.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ffe:journl:v:8:y:2011:i:1:p:17-42. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sophie Bodo (email available below). General contact details of provider: http://www.ffe.esc-lille.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.