Improving Performance of Non-Insurance Companies with Insurance Companies

42 Pages Posted: 29 Aug 2018

See all articles by Jing Rong Goh

Jing Rong Goh

Risk Lighthouse International, Singapore; Singapore Management University

Date Written: June 28, 2018


This paper proposes that non-insurers with an insurance arm outperforms those without an insurance arm. Outperformance appears in the form of higher operating performance, lower operating risks and higher operating efficiency. This interesting phenomena can be explained by two separate strands of literature: (i) traditional finance literature on firm’s financing decision suggesting that provisions from insurance companies are a preferred tool of financing and (ii) internal capital market (ICM) literature suggesting the efficient allocation of resources by the firm’s headquarters. Taken together, this implies that non-insurers with an insurance arm have the ability and a preference to utilize provisions from the insurers to finance more profitable investments projects of other business segments, leading to the observed outperformance. Indeed, I document that non-insurers with an insurance arm have lower leverage and are less financially constrained than their counterparts. To address endogeneity issues, I use M&A to establish causality and continue to document supporting results. Furthermore, I conducted additional tests on M&A announcement returns and long-run stock returns and provide support for the paper’s hypothesis as well as the efficient market hypothesis and show that the diversification discount effect does not hold in our setting.

Keywords: insurance companies, internal capital market, resource-allocation, mergers & acquisitions, capital structure, firm performance, financial constraint, efficient market hypothesis, diversification discount

JEL Classification: G22,G32

Suggested Citation

Goh, Jing Rong, Improving Performance of Non-Insurance Companies with Insurance Companies (June 28, 2018). Available at SSRN: or

Jing Rong Goh (Contact Author)

Risk Lighthouse International, Singapore ( email )

Singapore Management University

90 Stamford Road

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