Do Publicly Traded Property–Casualty Insurers Cater to the Stock Market?

16 Pages Posted: 24 May 2012

See all articles by Yu-Luen Ma

Yu-Luen Ma

Illinois State University - Katie Insurance School

Yayuan Ren

Illinois State University-Department of Finance, Insurance and Law

Date Written: June 2012

Abstract

This article examines the catering theory in the insurance industry. We investigate whether managers of publicly traded insurers pursue a growth strategy catering to the stock market's preference. Two hypotheses are tested in this study: (1) an insurer will devote more efforts to increasing premium growth when the stock market places greater values on growth, and (2) this catering effect will be more pronounced at firms where managers have greater incentives to maximize short‐term stock prices. We find evidence supporting both hypotheses. Our study discovers a new channel through which the stock market and executive compensation affect insurance companies’ business strategies and the insurance market. The implication of the interplay between insurers and the stock market is significant and deserves future research.

Suggested Citation

Ma, Yu-Luen and Ren, Yayuan, Do Publicly Traded Property–Casualty Insurers Cater to the Stock Market? (June 2012). Journal of Risk and Insurance, Vol. 79, Issue 2, pp. 415-430, 2012, Available at SSRN: https://ssrn.com/abstract=2065690 or http://dx.doi.org/10.1111/j.1539-6975.2011.01438.x

Yu-Luen Ma (Contact Author)

Illinois State University - Katie Insurance School ( email )

Normal, IL 61790
United States

Yayuan Ren

Illinois State University-Department of Finance, Insurance and Law ( email )

Normal, IL
United States

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