The financial leverage of Insurers subject to price regulation: evidence from Canada
The variation in the degree of price regulation in the property-liability insurance market in Canada varies across time and space, creating an opportunity to test a recurring theory in regulatory economics: that price regulated firms have higher levels of financial leverage. Using an instrumental variable for the stringency of price-regulation, this paper utilizes a panel data set of Canadian property-liability insurers over ten years of time, 1997-2006. The results support the theory but do not conclude on whether the increase in financial leverage is a strategic decision or a natural reaction to worsening business conditions brought-on by price-regulation.
|Date of creation:||30 Sep 2008|
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- Robert A. Taggart, Jr., 1982. "Effects of Regulation on Utility Financing: Theory and Evidence," NBER Working Papers 0866, National Bureau of Economic Research, Inc.
- Robert Klein & Richard Phillips & Wenyan Shiu, 2002. "The Capital Structure of Firms Subject to Price Regulation: Evidence from the Insurance Industry," Journal of Financial Services Research, Springer, vol. 21(1), pages 79-100, February.
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- Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
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