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

37 Pages Posted: 8 Feb 2012

See all articles by Mike Adams

Mike Adams

affiliation not provided to SSRN

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Hong Zou

The University of Hong Kong - Faculty of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 8, 2012

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 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.

Keywords: Corporate Risk Management, Insurance, Corporate Governance, Managerial Incentives, Monitoring, China

JEL Classification: G22, G30, G32

Suggested Citation

Adams, Mike and Lin, Chen and Zou, Hong, Chief Executive Officer Incentives, Monitoring, and Corporate Risk Management: Evidence from Insurance Use (February 8, 2012). Available at SSRN: https://ssrn.com/abstract=2001332 or http://dx.doi.org/10.2139/ssrn.2001332

Mike Adams (Contact Author)

affiliation not provided to SSRN

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hong Zou

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

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