The Effect of Predation Risk on Cash Holdings: Empirical Evidence from the U.S. Property‐Liability Insurance Industry

30 Pages Posted: 5 Jun 2020

See all articles by Xin Che

Xin Che

California State University, Fullerton

Stephen G. Fier

University of Mississippi

Andre P. Liebenberg

University of Mississippi - School of Business Administration

Date Written: Fall 2019

Abstract

Corporate cash holdings play a significant role in the U.S. property‐liability insurance industry yet the topic of insurer cash holdings policy has largely been overlooked by prior empirical research. While a number of studies have investigated firm‐specific factors related to cash holdings in the insurance industry, prior research has not examined how market concentration and potential predation risk impact cash holdings. We propose a new measure of market concentration and provide evidence in support of the predation risk theory. Specifically, we show that insurers exposed to more concentrated markets tend to hold more cash. Furthermore, the relation between market concentration and cash holdings is influenced by access to internal capital. While unaffiliated insurers without access to internal capital hold greater levels of cash in more concentrated markets, group insurers with access to internal capital do not hold greater levels of cash to mitigate predation risk.

Keywords: predation risk, cash holdings, market concentration, insurance industry

Suggested Citation

Che, Xin and Fier, Stephen G. and Liebenberg, Andre P., The Effect of Predation Risk on Cash Holdings: Empirical Evidence from the U.S. Property‐Liability Insurance Industry (Fall 2019). Risk Management and Insurance Review, Vol. 22, Issue 3, pp. 329-358, 2019, Available at SSRN: https://ssrn.com/abstract=3618448 or http://dx.doi.org/10.1111/rmir.12131

Xin Che (Contact Author)

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

Stephen G. Fier

University of Mississippi

Oxford, MS 38677
United States

Andre P. Liebenberg

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
363
PlumX Metrics