Does One Size Fit All? Determinants of Insurer Capital Structure Around the Globe
44 Pages Posted: 15 Sep 2015 Last revised: 20 Sep 2015
Date Written: October 11, 2014
As financial markets become more global, the question arises whether any country specific considerations are still relevant for insurance companies’ capital structure. This research examines this questions with firm-level data across a broad range of countries including those in developing markets. What we find is that the optimal capital structure of insurance companies is not homogeneous across countries. We find that country-level factors explain a substantial fraction of the cross-sectional variation in insurance companies’ capitalization levels. Our results add to the current policy discussion on global regulatory capital requirements. If insurer capital structure is not homogeneous across countries, a global capital standard – if desired – should take differences in the institutional environments across countries into account to avoid market distortions.
Keywords: Capital structure, international finance, regulation, financial institutions, insurance markets
JEL Classification: F33, G15, G22, G28, L51
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