Research summary: This study examines whether the stock and bond prices of firms engaging in corporate social responsibility (CSR) can benefit from insurance-like effects during occurrences of ...negative events. Our results suggest that in the face of negative events, engagement in CSR on a continuous, long-term basis provides insurance-like effects on both the stock and bond prices of firms. Nevertheless, the effects are found to quickly disappear following the occurrence of a second, or subsequent, negative event. Although our results clearly indicate that firms need to allocate some of their available resources to long-term strategic CSR activities, managers must also realize that in a crisis communication, they will probably be able to use their CSR claims on one occasion only. Managerial summary: The purpose of this article is to examine whether firms engaging in corporate social responsibility (CSR) can benefit from insurance-like effects during occurrences of negative events. We find that on the occurrence of a negative event, long-term CSR engagement does have insurance-like effects. We also find that these insurance-like effects may quickly disappear following the occurrence of a second negative event. Managers of firms with a long history of CSR activities need to realize that in a crisis communication, they can probably use their claims of adherence to CSR only once.
We set out in this study to examine (a) whether “socially responsible investment” (SRI) portfolios can outperform less‐SRI portfolios in the emerging Asian stock markets and (b) whether investors ...within these emerging markets achieve awareness of SRI through publicly available news. On the basis of 2009–2013 data, we find that SRI portfolios tend to perform better in Japan. However, firms in the emerging Asian markets do not earn rewards for superior corporate social responsibility (CSR) practices. We also find that investors in the emerging Asian markets are indeed aware of SRI through public CSR news releases; in particular, investors in these markets reward high environmental‐, social‐, and governance‐rated firms for their good CSR practices advertised through such news releases, relative to those with no news releases.
We examine the effects of internal capital transfer and external capital issuance on asset risk-taking using a database containing detailed information on capital. Consistent with capital buffer ...theory, we find that external capital issuance is positively related to risk-taking adjustment. We also find that the funds received via internal capital transfers are negatively related to risk-taking adjustment among affiliated insurers with lower capitalization and negative profitability, underscoring the monitoring role of groups with affiliates' risk-taking behavior. Our results emphasize the sharp contrast between internal capital transfer and external capital issuances on affiliates’ risk-taking.
This study explicitly investigates the risk-sharing function of internal capital markets by analyzing intragroup reinsurance (a substitute for capital) activities in the United States' non-life ...insurance sector. We find supporting evidence that intragroup reinsurance participants are generally associated with smoother income flows, and such an income smoothing effect exists for both ceding and assuming firms. Further to prior studies, we find that internal reinsurance ceded exerts both direct and indirect effects on premiums growth in the aftermath of the financial crisis in 2007 and 2008. In addition to direct capacity support, the reduction in income volatility is another channel through which intragroup reinsurance enhances ceding firms' premiums growth. In the presence of market turmoil, the risk-sharing function can lower member firms' insolvency risk and thus enable them to pursue business growth.
•Intragroup reinsurance participants are generally associated with smoother income flows, and such an income smoothing effect exists for both ceding and assuming firms.•Internal reinsurance ceded exerts both direct and indirect effects on premiums growth in the aftermath of the financial crisis in 2007 and 2008.•In the presence of market turmoil, the risk-sharing function can lower member firms' insolvency risk and thus enable them to pursue business growth.
Prior studies have employed extrapolation to reduce truncation errors when computing risk-neutral moments. However, extrapolation may have a disadvantage in that it obscures the predictive power of ...risk-neutral skewness and kurtosis. Our out-of-sample results show that extrapolation does not enhance the predictive power of the volatility forecasting models when risk-neutral volatility, skewness, and kurtosis are included. Under this model specification, extrapolation generates less accurate forecasts and obscures the performance of risk-neutral kurtosis in volatility forecasting.
•Extrapolation obscures the predictive power of risk-neutral skewness and kurtosis.•Extrapolation does not enhance the predictive power of the volatility forecasting models.•Extrapolation obscures the performance of risk-neutral kurtosis in volatility forecasting.
Prior studies conclude that hedging has a positive effect on firms’ debt capacity; however, in the present study, we argue that this relationship is moderated by their financial flexibility. Using ...statutory data from 2001 to 2016 from the National Association of Insurance Commissioners database on U.S. property and casualty insurers and a simultaneous equations model, we examine how financial flexibility moderates the effect of reinsurance—a risk management tool commonly used by insurance firms—on debt capacity. We find that the relationship between reinsurance usage and debt capacity is positive for financially inflexible insurers, but negative for their financially flexible counterparts, thereby suggesting that the effects of reinsurance are actually dependent upon the financial flexibility of insurers. Several robustness checks are conducted and our main results remain qualitatively unchanged.
•The coinsurance function of internal capital markets is contingent on internal capital providers’ financial resources and on capital receivers’ relative sizes.•Larger insurers are more likely to ...obtain internal reinsurance if their affiliated insurers hoard more financial resources.•The financial capabilities of group members providing support affect the feasibility of the coinsurance function through the activities of internal capital markets.•Group members with greater influence are more likely to benefit from the coinsurance function.
By analyzing intragroup reinsurance activities in the US nonlife insurance sector from 1999 to 2016, we provide evidence that the coinsurance function of internal capital markets is contingent on internal capital providers’ financial resources and the relative sizes of capital receivers within the group. We demonstrate that insurance groups commonly use intragroup reinsurance (a substitute for capital) to support insurers that sustain underwriting losses. Larger insurers are more likely to obtain internal reinsurance if their affiliated insurers hold more financial resources. Our findings show that the financial capabilities of group members providing support affect the feasibility of the coinsurance function through the activities of internal capital markets. Group members with greater influence are more likely to benefit from the coinsurance function.
Our overall aim in this research is to identify the effects of the business mix of insurers on their overall reinsurance usage, based on the use of the Cragg (Econometrica39:829–844, 1971) model, for ...our analysis of the reinsurance decisions made by insurers in the U.K. life insurance industry between 2005 and 2014. Our findings reveal a positive (negative) correlation between with-profit (unit-linked) business and reinsurance, thereby indicating that insurers underwriting riskier product mixes have a higher demand for reinsurance. We go on to separate total reinsurance into internal and external reinsurance before carrying out further analyses. Our results reveal that insurers underwriting more with-profit business appear to use more internal reinsurance, which would seem to imply that internal reinsurance could be more cost effective for those reinsurance transactions involving greater managerial discretion.
We compare and contrast the clientele effect, information content and the buy‐and‐ hold returns of options with weekly and monthly expiration periods (Weeklys and Monthlys) traded on the Taiwan Stock ...Exchange Capitalization‐weighted Stock Index (TAIEX). No significant clientele effect is discernible in either market. Furthermore, Weeklys has the wider bid‐ask spread and lower depth clearly implies greater information asymmetry than Monthlys. Unlike Weeklys, Monthlys are found to play a leading informational role in TAIEX returns. We further observe that both types of options have significantly negative returns.
A three-equation structural model is applied in this study to facilitate our examination of 1994–2011 regulatory returns data on UK non-life insurers, from which we find that those insurers using ...more reinsurance tended to have inferior financial performance, whilst those insurers with a predisposition towards risk management tended to have used both reinsurance and derivatives. We also find that those insurers with high loss ratios were found to have inferior financial performance. Our analysis sheds some light on the relationships between financial performance, reinsurance and derivative usage.
•Insurers using more reinsurance tended to have inferior financial performance.•Insurers with a predisposition towards risk management tended to have used both reinsurance and derivatives.•Insurers with high loss ratios were found to have inferior financial performance.
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