Institutional Ownership Stability and Risk Taking: Evidence from the Life-Health Insurance Industry

Jiang Cheng, Elyas Elyasiani and Jingyi (Jane) Jia

No 2011-WP-14, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: We investigate the relationship between risk taking of life-health (LH) insurers and health (LH) insurers and stability of their institutional ownership within a simultaneous equation system model. Several results stability of their institutional ownership within a simultaneous equation system model. Several results are obtained. First, stable institutional ownership is associated with lower total risk of LH insurers, supporting the prutudent-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. Fourth, institutional owners reduce riskiness of the investees through reduction their leverage and underwriting risks, though they increase their investment risk, in which they have greater expertise. These findings have important regulatory, managerial and investment implications.

Keywords: Life Insurance; Institutional Ownership; Monitoring; Risk Taking (search for similar items in EconPapers)
JEL-codes: G12 G22 G32 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2011-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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