Determinants of Corporate Diversification: Evidence from the Property–Liability Insurance Industry

33 Pages Posted: 24 May 2012

See all articles by Thomas Berry-Stölzle

Thomas Berry-Stölzle

University of Iowa - Department of Finance

Andre P. Liebenberg

University of Mississippi - School of Business Administration

Joseph S. Ruhland

Georgia Southern University - College of Business Administration

David W. Sommer

St. Mary's University; University of Georgia - Department of Insurance, Legal Studies, Real Estate

Date Written: June 2012

Abstract

This article analyzes variations in line‐of‐business diversification status and extent among property–liability insurers. Our results show that the extent of diversification is not driven by risk pooling considerations; insurers operating in more volatile business lines do not diversify more. Diversification can rather be explained by the benefits of internal capital markets and barriers to business growth like market size and concentration. In our analysis, we distinguish between related and unrelated diversification. Using a measure of unrelated line‐of‐business diversification we find the first support for the diversification prediction of the managerial discretion hypothesis that mutual insurers should be less diversified than stock insurers. While mutual insurers tend to exhibit higher levels of total diversification, they engage in significantly less unrelated diversification than do stock insurers.

Suggested Citation

Berry-Stölzle, Thomas and Liebenberg, Andre P. and Ruhland, Joseph S. and Sommer, David W., Determinants of Corporate Diversification: Evidence from the Property–Liability Insurance Industry (June 2012). Journal of Risk and Insurance, Vol. 79, Issue 2, pp. 381-413, 2012, Available at SSRN: https://ssrn.com/abstract=2065681 or http://dx.doi.org/10.1111/j.1539-6975.2011.01423.x

Thomas Berry-Stölzle (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

Andre P. Liebenberg

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Joseph S. Ruhland

Georgia Southern University - College of Business Administration ( email )

GA
United States

David W. Sommer

St. Mary's University ( email )

1 Camino Santa Maria
San Antonio, TX 78023
United States
210-431-8055 (Phone)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
706-542-5160 (Phone)
706-542-4295 (Fax)

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