Chief Executive Officer Incentives, Monitoring, and Corporate Risk Management: Evidence from Insurance Use

32 Pages Posted: 27 Aug 2011

See all articles by Mike Adams

Mike Adams

affiliation not provided to SSRN

Chen Lin

affiliation not provided to SSRN

Hong Zou

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: September 2011

Abstract

Corporate governance and risk management issues have received prominent publicity in recent years following several major company failures such as Bear Stearns and Lehman Brothers. While prior studies have examined this issue within the context of derivatives’ trading, little is known regarding the linkage between corporate governance and alternative corporate risk management activities such as insurance. Using a detailed firm survey conducted by the World Bank (2004), we examine the impacts of various governance monitoring mechanisms and chief executive officer (CEO) characteristics on the corporate insurance decision. Overall, our results suggest that both monitoring mechanisms and managerial incentives induce the corporate purchase of property insurance. However, the purchase of property insurance for managerial self‐interest is only prevalent in firms subject to lax monitoring, and the determinants of insurance purchases are more in line with the prediction of the economic theory in firms with strong monitoring. In addition, our study contributes a number of new insights into the determinants of corporate purchase of property insurance.

Suggested Citation

Adams, Mike and Lin, Chen and Zou, Hong, Chief Executive Officer Incentives, Monitoring, and Corporate Risk Management: Evidence from Insurance Use (September 2011). Journal of Risk and Insurance, Vol. 78, Issue 3, pp. 551-582, 2011. Available at SSRN: https://ssrn.com/abstract=1917907 or http://dx.doi.org/10.1111/j.1539-6975.2011.01409.x

Mike Adams (Contact Author)

affiliation not provided to SSRN

Chen Lin

affiliation not provided to SSRN

Hong Zou

affiliation not provided to SSRN

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