3,603
Views
3
CrossRef citations to date
0
Altmetric
Research Article

Risk management and the cost of equity: evidence from the United Kingdom’s non-life insurance market

ORCID Icon, &
Pages 551-570 | Received 25 Nov 2020, Accepted 24 May 2021, Published online: 08 Jun 2021

References

  • Abdul-Kader, H., M. Adams, and K. Mouratidis. 2010. “Testing for Trade-Offs in the Reinsurance Decision of U.K. Life Insurance Firms.” Journal of Accounting, Auditing & Finance 25: 491–522.
  • Abudy, M., S. Benninga, and E. Shust. 2016. “The Cost of Equity for Private Firms.” Journal of Corporate Finance 37: 431–443.
  • Altman, E. I. 1968. “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy.” The Journal of Finance 23: 589–609.
  • Altman, E. I. 2013. “Predicting Financial Distress of Companies: Revisiting the Z-Score and ZETA® Models.” In Handbook of Research Methods and Applications in Empirical Finance. Cheltenham: Edward Elgar Publishing.
  • Aunon-Nerin, D., and P. Ehling. 2008. “Why Firms Purchase Property Insurance?” Journal of Financial Economics 90: 298–312.
  • Bartram, S. M., G. W. Brown, and J. Conrad. 2011. “The Effects of Derivatives on Firm Risk and Value.” Journal of Financial and Quantitative Analysis 46: 967–999.
  • Bartram, S. M., G. W. Brown, and R. M. Stulz. 2012. “Why are U.S. Stocks More Volatile?” The Journal of Finance 67: 1329–1370.
  • Borde, S. F., K. Chambliss, and J. Madura. 1994. “Explaining Variation in Risk Across Insurance Companies.” Journal of Financial Services Research 8: 177–191.
  • Botosan, C. A. 1997. “Disclosure Level and the Cost of Equity Capital.” Accounting Review 72: 323–349.
  • Botosan, C. A., and M. A. Plumlee. 2005. “Assessing Alternative Proxies for the Expected Risk Premium.” The Accounting Review 80: 21–53.
  • Botosan, C. A., M. A. Plumlee, and H. E. Wen. 2011. “The Relation Between Expected Returns, Realized Returns, and Firm Risk Characteristics.” Contemporary Accounting Research 28: 1085–1122.
  • Campbell, J. Y. 1996. “Understanding Risk and Return.” Journal of Political Economy 104: 298–345.
  • Campbell, J. Y., J. Hilscher, and J. Szilagi. 2008. “In Search of Distress Risk.” The Journal of Finance 63: 2899–2939.
  • Campello, M., C. Lin, Y. U. E. Ma, and H. Zou. 2011. “The Real and Financial Implications of Corporate Hedging.” The Journal of Finance 66: 1615–1647.
  • Chava, S., and R. A. Jarrow. 2004. “Bankruptcy Prediction with Industry Effects*.” Review of Finance 8: 537–569.
  • Chava, S., and A. Purnanandam. 2010. “Is Default Risk Negatively Related to Stock Returns?” Review of Financial Studies 23: 2523–2559.
  • Chen, J., and T. H. D. King. 2014. “Corporate Hedging and the Cost of Debt.” Journal of Corporate Finance 29: 221–245.
  • Choi, J. J., C. X. Mao, and A. D. Upadhyay. 2013. “Corporate Risk Management Under Information Asymmetry.” Journal of Business Finance & Accounting 40: 239–271.
  • Cole, C. R., and K. A. McCullough. 2006. “A Reexamination of the Corporate Demand for Reinsurance.” Journal of Risk & Insurance 73: 169–192.
  • Cummins, J. D., and R. D. Phillips. 2005. “Estimating the Cost of Equity Capital for Property-Liability Insurers.” Journal of Risk & Insurance 72: 441–478.
  • Cummins, J. D., and R. D. Phillips. 2009. “Capital Adequacy and Insurance Risk-Based Capital Systems.” Journal of Insurance Regulation 28: 25–72.
  • DeMarzo, P. M., and D. Duffie. 1995. “Corporate Incentives for Hedging and Hedge Accounting.” Review of Financial Studies 8: 743–771.
  • Dichev, I. D. 1998. “Is the Risk of Bankruptcy a Systematic Risk?” The Journal of Finance 53: 1131–1147.
  • Disatnik, D., R. Duchin, and B. Schmidt. 2013. “Cash Flow Hedging and Liquidity Choices.” Review of Finance 18: 715–748.
  • Doherty, N. A. 2000. Integrated Risk Management: Techniques and Strategies for Reducing Risk. London: McGraw-Hill.
  • Doherty, N. A., and J. Lamm-Tennant. 2009. “Lessons from the Financial Crisis on Risk and Capital Management: The Case of Insurance Companies.” Journal of Applied Corporate Finance 21: 52–59.
  • Doherty, N. A., and S. M. Tinic. 1981. “Reinsurance Under Conditions of Capital Market Equilibrium: A Note.” Journal of Finance 36: 949–953.
  • Driscoll, J. C., and A. C. Kraay. 1998. “Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data.” Review of Economics and Statistics 80: 549–560.
  • Easley, D., and M. O’Hara. 2004. “Information and the Cost of Capital.” The Journal of Finance 59: 1553–1583.
  • Fama, E. F., and K. R. French. 1995. “Size and Book-to-Market Factors in Earnings and Returns.” The Journal of Finance 50: 131–155.
  • Fama, E. F., and K. R. French. 1997. “Industry Costs of Equity.” Journal of Financial Economics 43: 153–193.
  • Froot, K. A. 1999. The Financing of Catastrophe Risk. Chicago: University of Chicago Press.
  • Froot, K. A. 2001. “The Market for Catastrophe Risk: A Clinical Examination.” Journal of Financial Economics 60: 529–571.
  • Froot, K. A. 2007. “Risk Management, Capital Budgeting, and Capital Structure Policy for Insurers and Reinsurers.” Journal of Risk & Insurance 74: 273–299.
  • Froot, K. A., and P. O’Connell. 2008. “On the Pricing of Intermediated Risks: Theory and Application to Catastrophe Reinsurance.” Journal of Banking & Finance 32: 69–85.
  • Froot, K. A., D. S. Scharfstein, and J. C. Stein. 1993. “Risk Management: Coordinating Corporate Investment and Financing Policies.” The Journal of Finance 48: 1629–1658.
  • Garven, J. R., and J. Lamm-Tennant. 2003. “The Demand for Reinsurance: Theory and Empirical Tests.” Insurance & Risk Management 7: 217–237.
  • Garven, J. R., and R. D. MacMinn. 1993. “The Underinvestment Problem, Bond Covenants, and Insurance.” The Journal of Risk and Insurance 60: 635–646.
  • Gay, G. D., C. Lin, and S. D. Smith. 2011. “Corporate Derivatives Use and the Cost of Equity.” Journal of Banking & Finance 35: 1491–1506.
  • Gormley, T. A., and D. A. Matsa. 2014. “Common Errors: How to (and not to) Control for Unobserved Heterogeneity.” Review of Financial Studies 27: 617–661.
  • Gray, P., P.-S. Koh, and Y. H. Tong. 2009. “Accruals Quality, Information Risk and Cost of Capital: Evidence from Australia.” Journal of Business Finance & Accounting 36: 51–72.
  • Greene, W. H. 2003. Econometric Analysis. Hoboken, NJ: Prentice Hall.
  • Gregory, A., and M. Michou. 2009. “Industry Cost of Equity Capital: UK Evidence.” Journal of Business Finance & Accounting 36: 679–704.
  • Hayashi, F. 2000. Econometrics. Princeton, NJ: Princeton University Press.
  • Hennessy, C. A., and T. M. Whited. 2005. “Debt Dynamics.” The Journal of Finance 60: 1129–1165.
  • Hoerger, T. J., F. A. Sloan, and M. Hassan. 1990. “Loss Volatility, Bankruptcy, and the Demand for Reinsurance.” Journal of Risk & Uncertainty 3: 221–245.
  • Huang, W., Q. Liu, S. G. Rhee, and L. Zhang. 2010. “Return Reversals, Idiosyncratic Risk, and Expected Returns.” Review of Financial Studies 23: 147–168.
  • Jean-Baptiste, E. L., and A. M. Santomero. 2000. “The Design of Private Reinsurance Contracts.” Journal of Financial Intermediation 9: 274–297.
  • Kaplan, P. D., and J. D. Peterson. 1998. “Full-Information Industry Betas.” Financial Management 27: 85–93.
  • Koller, T., M. H. Goedhart, and D. Wessels. 2010. Valuation: Measuring and Managing the Value of Companies. Hoboken, NJ: Wiley.
  • Kyriacou, K., J. B. Madsen, and B. Mase. 2006. “Does Inflation Exaggerate the Equity Premium?” Journal of Economic Studies 33: 344–356.
  • Larsen, C. R., and R. J. Resutek. 2017. “Types of Investor Uncertainty and the Cost of Equity Capital.” Journal of Business Finance & Accounting 44: 1169–1193.
  • Laux, C., and A. Muermann. 2010. “Financing Risk Transfer Under Governance Problems: Mutual Versus Stock Insurers.” Journal of Financial Intermediation 19: 333–354.
  • Leland, H. E. 1998. “Agency Costs, Risk Management, and Capital Structure.” The Journal of Finance 53: 1213–1243.
  • Leland, H. E. 1999. “Beyond Mean–Variance: Performance Measurement in a Nonsymmetrical World (Corrected).” Financial Analysts Journal 55: 27–36.
  • Li, K., J. Lockwood, and H. Miao. 2017. “Risk-Shifting, Equity Risk, and the Distress Puzzle.” Journal of Corporate Finance 44: 275–288.
  • Lin, C., P. Lin, and H. Zou. 2012. “Does Property Rights Protection Affect Corporate Risk Management Strategy? Intra- and Cross-Country Evidence.” Journal of Corporate Finance 18: 311–330.
  • Lloyd’s of London. 2018. Lloyd’s 2017 Annual Report. London: Lloyd’s Insurance Market.
  • Low, P. 2019. “The Natural Disasters of 2018 in Figures.” Munich Re.
  • Mayers, D., and C. W. Smith. 1982. “On the Corporate Demand for Insurance.” The Journal of Business 55: 281–296.
  • Mayers, D., and C. W. Smith. 1990. “On the Corporate Demand for Insurance: Evidence from the Reinsurance Market.” The Journal of Business 63: 19–40.
  • Modigliani, F., and M. H. Miller. 1963. “Corporate Income Taxes and the Cost of Capital: a Correction.” The American Economic Review 53: 433–443.
  • Nance, D. R., C. W. Smith, and C. W. Smithson. 1993. “On the Determinants of Corporate Hedging.” The Journal of Finance 48: 267–284.
  • Nelson, K. K. 2000. “Rate Regulation, Competition, and Loss Reserve Discounting by Property-Casualty Insurers.” The Accounting Review 75: 115–138.
  • O’Hanlon, J., and A. Steele. 2000. “Estimating Equity Risk Premium Using Accounting Fundamentals.” Journal of Business Finance & Accounting 27: 1051–1083.
  • Plantin, G. 2006. “Does Reinsurance Need Reinsurers?” Journal of Risk & Insurance 73: 153–168.
  • Post, T., H. Gründl, L. Schmidl, and M. S. Dorfman. 2007. “Implications of IFRS for the European Insurance Industry - Insights from Capital Market Theory.” Risk Management and Insurance Review 10: 247–265.
  • Rubinstein, M. 1976. “The Valuation of Uncertain Income Streams and the Pricing of Options.” The Bell Journal of Economics 7: 407–425.
  • Schrand, C., and H. Unal. 1998. “Hedging and Coordinated Risk Management: Evidence from Thrift Conversions.” The Journal of Finance 53: 979–1013.
  • Sharfman, M. P., and C. S. Fernando. 2008. “Environmental Risk Management and the Cost of Capital.” Strategic Management Journal 29: 569–592.
  • Shim, J. 2011. “Mergers & Acquisitions, Diversification, and Performance in the U.S. Property-Liability Insurance Industry.” Journal of Financial Services Research 39: 119–144.
  • Shimpi, P. 2002. “Integrating Risk Management and Capital Management.” Journal of Applied Corporate Finance 14: 27–40.
  • Shiu, Y.-M. 2011. “Reinsurance and Capital Structure: Evidence from the United Kingdom Non-Life Insurance Industry.” Journal of Risk & Insurance 78: 475–494.
  • Shumway, T. 2001. “Forecasting Bankruptcy More Accurately:A Simple Hazard Model.” The Journal of Business 74: 101–124.
  • Smith, C. W., and R. M. Stulz. 1985. “The Determinants of Firms’ Hedging Policies.” Journal of Financial & Quantitative Analysis 20: 391–405.
  • Stulz, R. 1996. “Rethinking Risk Management.” Journal of Applied Corporate Finance 9: 8–25.
  • Swiss Re. 2018. “World Insurance in 2017: Solid But Mature Life Markets Weigh on Growth, Sigma, 3/2018.” Swiss Re, Zurich.
  • Tufano, P. 1998. “Agency Costs of Corporate Risk Management.” Financial Management 27: 67–77.
  • Upreti, V., and M. Adams. 2015. “The Strategic Role of Reinsurance in the United Kingdom’s (UK) Non-Life Insurance Market.” Journal of Banking & Finance 61: 206–219.
  • Vassalou, M., and Y. Xing. 2004. “Default Risk in Equity Returns.” The Journal of Finance 59: 831–868.
  • Veprauskaite, E., and M. B. Adams. 2018. “Leverage and Reinsurance Effects on Loss Reserves in the United Kingdom’s Property–Casualty Insurance Industry.” Accounting and Business Research 48: 373–399.
  • Wakker, P., R. Thaler, and A. Tversky. 1997. “Probabilistic Insurance.” Journal of Risk and Uncertainty 15: 7–28.
  • Wen, M.-M., A. D. Martin, G. Lai, and T. J. O’Brien. 2008. “Estimating the Cost of Equity for Property-Liability Insurance Companies.” Journal of Risk & Insurance 75: 101–124.
  • Wooldridge, J. M. 2002. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.
  • Zou, H., and M. B. Adams. 2008. “Debt Capacity, Cost of Debt and Corporate Insurance.” Journal of Financial and Quantitative Analysis 43: 433–466.