Corporate Governance and Risk Taking: Evidence from the U.K. and German Insurance Markets

30 Pages Posted: 20 Aug 2014

See all articles by Sebastian D. Marek

Sebastian D. Marek

University of Ulm - Institute of Insurance Science

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Date Written: September 2014

Abstract

We analyze the impact of factors related to corporate governance (i.e., compensation, monitoring, and ownership structure) on risk taking in the insurance industry. We measure asset, product, and financial risk in insurance companies and employ a structural equation model in which corporate governance is modeled as a latent factor. Based on this model, we present empirical evidence on the link between corporate governance and risk taking, considering insurers from two large European insurance markets. Higher levels of compensation, increased monitoring (more independent boards with more meetings), and more blockholders are associated with lower risk taking. Our empirical results provide justification for including factors related to corporate governance in insurance regulation.

Suggested Citation

Marek, Sebastian D. and Eling, Martin, Corporate Governance and Risk Taking: Evidence from the U.K. and German Insurance Markets (September 2014). Journal of Risk and Insurance, Vol. 81, Issue 3, pp. 653-682, 2014. Available at SSRN: https://ssrn.com/abstract=2483539 or http://dx.doi.org/10.1111/j.1539-6975.2012.01510.x

Sebastian D. Marek

University of Ulm - Institute of Insurance Science

Ulm, 89081
Germany

Martin Eling

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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