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

Journal of Risk and Insurance, Forthcoming

Networks Financial Institute Working Paper No. 2011-WP-14

45 Pages Posted: 18 Jul 2011

See all articles by Jiang Cheng

Jiang Cheng

Shanghai Jiao Tong University (SJTU)

Elyas Elyasiani

Temple University - Department of Finance

Jingyi Jia

Southern Illinois University at Edwardsville - Department of Economics & Finance

Date Written: July 18, 2011

Abstract

We investigate the relationship between risk taking of life-health (LH) insurers and stability of their institutional ownership within a simultaneous equation system model. Several results are obtained. First, stable institutional ownership of is associated with lower total risk of LH insurers, supporting the prudent-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 of 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. Note: This paper is forthcoming in the Journal of Risk and Insurance.

Keywords: Life Insurance, Institutional Ownershp, Monitoring, Risk Taking

JEL Classification: G22, G32, G12

Suggested Citation

Cheng, Jiang and Elyasiani, Elyas and Jia, Jingyi, Institutional Ownership Stability and Risk Taking: Evidence from the Life-Health Insurance Industry (July 18, 2011). Journal of Risk and Insurance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1888243 or http://dx.doi.org/10.2139/ssrn.1888243

Jiang Cheng (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Elyas Elyasiani

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Jingyi Jia

Southern Illinois University at Edwardsville - Department of Economics & Finance ( email )

Edwardsville, IL 62026
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
118
Abstract Views
944
rank
238,210
PlumX Metrics