Institutional Ownership Stability and Risk Taking: Evidence From the Life–Health Insurance Industry

Institutional Ownership Stability and Risk Taking: Evidence From the Life–Health Insurance Industry

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Article ID: iaor201112131
Volume: 78
Issue: 3
Start Page Number: 609
End Page Number: 641
Publication Date: Sep 2011
Journal: Journal of Risk and Insurance
Authors: , ,
Keywords: insurance
Abstract:

We investigate the relationship between risk taking of life–health (LH) insurers and stability of their institutional ownership within a simultaneous equation system model. Three main results are obtained. First, stable institutional ownership of is associated with lower total risk of LH insurers, supporting the prudent‐man law hypothesis. Second, when investors are sorted in terms of stringency of the prudent‐man restrictions, their negative effect on risk holds for all, except insurance companies, as owners of LH insurers. Third, large institutional owners do not raise the riskiness of the investee‐firms, as proposed by the large shareholder hypothesis. Regulatory implications are drawn.

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