Corporate Governance and Risk Taking: Evidence From the U.K. and German Insurance Markets

Corporate Governance and Risk Taking: Evidence From the U.K. and German Insurance Markets

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Article ID: iaor201522203
Volume: 81
Issue: 3
Start Page Number: 653
End Page Number: 682
Publication Date: Sep 2014
Journal: Journal of Risk and Insurance
Authors: ,
Keywords: risk, management
Abstract:

We analyze the impact of factors related to corporate governance (i.e., compensation, monitoring, and ownership structure) on risk taking in the insurance industry. We measure asset, product, and financial risk in insurance companies and employ a structural equation model in which corporate governance is modeled as a latent factor. Based on this model, we present empirical evidence on the link between corporate governance and risk taking, considering insurers from two large European insurance markets. Higher levels of compensation, increased monitoring (more independent boards with more meetings), and more blockholders are associated with lower risk taking. Our empirical results provide justification for including factors related to corporate governance in insurance regulation.

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