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Institutional Ownership Stability and Risk Taking: Evidence from the Life-Health Insurance Industry

Author

Listed:
  • Jiang Cheng
  • Elyas Elyasiani
  • Jingyi (Jane) Jia

Abstract

We investigate the relationship between risk taking of life-health (LH) insurers and health (LH) insurers and stability of their institutional ownership within a simultaneous equation system model. Several results stability of their institutional ownership within a simultaneous equation system model. Several results are obtained. First, stable institutional ownership is associated with lower total risk of LH insurers, supporting the prutudent-man law hypothesis. Second, when investors are sorted in terms of stringency of the prudent-man restrictions, their negative effect on risk holds for all, except insurance companies, as owners of LH insurers. Third, large institutional owners do not raise the riskiness of the investee-firms, as proposed by the large shareholder hypothesis. Fourth, institutional owners reduce riskiness of the investees through reduction their leverage and underwriting risks, though they increase their investment risk, in which they have greater expertise. These findings have important regulatory, managerial and investment implications.

Suggested Citation

  • Jiang Cheng & Elyas Elyasiani & Jingyi (Jane) Jia, 2011. "Institutional Ownership Stability and Risk Taking: Evidence from the Life-Health Insurance Industry," NFI Working Papers 2011-WP-14, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfiwps:2011-wp-14
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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