Financing and the Demand for Corporate Insurance

Martin Grace and Michael J. Rebello
Additional contact information
Michael J. Rebello: College of Business Administration, Georgia State University, GA 30303, Atlanta

The Geneva Risk and Insurance Review, 1993, vol. 18, issue 2, 147-171

Abstract: In this paper we examine the insurance decision of a firm with private information regarding its cash flows and insurable losses. We show that, even in the absence of bankruptcy costs and information production by insurers, the firm's attempts to hedge its information risk can induce it to demand insurance. If higher operating revenues are accompanied by a lower insurance risk, the firm will choose to self-insure. In contrast, if higher operating revenues are accompanied by a higher insurance risk, the firm will demand insurance. In fact, if its insurable losses are relatively small, the firm will fully insure its losses. Further, if there exists considerable uncertainty regarding the firm's insurance risk, the level of coverage demanded by the firm is dependent on its private information, with higher levels of coverage signaling favorable information regarding the firm's future operations. The Geneva Papers on Risk and Insurance Theory (1993) 18, 147–171. doi:10.1007/BF01111467

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v18/n2/pdf/grir199342a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v18/n2/full/grir199342a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:18:y:1993:i:2:p:147-171

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().