Portfolio rebalancing behavior with operating losses and investment regulation
M. Martin Boyer (),
Elicia P. Cowins and
Willie D. Reddic
International Review of Economics & Finance, 2019, vol. 63, issue C, 313-328
Firms should make every attempt to reduce their tax burden by, for instance, preferring higher-yield taxable investments when faced with operating losses and lower-yield tax-exempt investments otherwise. We examine in this paper whether there are impediments to rebalancing which result from a firm's regulatory environment. Using an original measure of investment regulatory stringency that U.S. property and casualty insurers encounter, we find that insurers operating in more stringent regulatory environments receive a lower percentage of their investment income from taxable sources. We conclude that regulatory constraints limit insurers from rebalancing efficiently their investment portfolio in response to operational performance.
Keywords: Statutory accounting principles; Property and casualty insurance; Tax-exempt and taxable securities; Regulatory investment limitations (search for similar items in EconPapers)
JEL-codes: G22 G28 K23 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:63:y:2019:i:c:p:313-328
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