Trust‐Preferred Securities and Insurer Financing Decisions

26 Pages Posted: 20 Feb 2018

See all articles by James I. Hilliard

James I. Hilliard

W.A. Franke College of Business

Steven W. Pottier

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Jianren Xu

California State University, Fullerton - Department of Finance

Date Written: March 2018

Abstract

We analyze insurance holding company (IHC) issuance of trust‐preferred securities (TPS) from 1994 to 2013. We find that larger and more financially levered IHCs issued TPS in 1996 and 1997, as well as those that obtained financial strength ratings from A.M. Best. Abnormal stock price returns are positively related to financial distress costs, growth opportunities, and tax burden, but negatively related to size. Consistent with the pecking order theory, intent to use TPS proceeds to retire debt is positively related to abnormal stock returns, whereas intent to use proceeds to retire preferred equity is negatively related to abnormal stock returns.

Suggested Citation

Hilliard, James I. and Pottier, Steven W. and Xu, Jianren, Trust‐Preferred Securities and Insurer Financing Decisions (March 2018). Journal of Risk and Insurance, Vol. 85, Issue 1, pp. 219-244, 2018. Available at SSRN: https://ssrn.com/abstract=3124651 or http://dx.doi.org/10.1111/jori.12137

James I. Hilliard (Contact Author)

W.A. Franke College of Business ( email )

PO Box 15066
Flagstaff, AZ 86011
United States
928-523-7901 (Phone)

Steven W. Pottier

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

Athens, GA 30602-6254
United States
706-542-3786 (Phone)
706-542-4295 (Fax)

HOME PAGE: http://www.terry.uga.edu/insurance/pottier.html

Jianren Xu

California State University, Fullerton - Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

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