Why Firms Purchase Property Insurance?

Daniel Aunon-Nerin and Paul Ehling
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Daniel Aunon-Nerin: Zurich Financial Services

No 07-16, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate whether corporate finance incentives aect the extent of corporate hedging with property insurance. Using a database that contains detailed insurance information, we show that rms buy property insurance to reduce the expected costs of distress. Further, we document a scale effect: large rms purchase less insurance per unit of property. This is consistent with the notion that expected bankruptcy costs fall as firm size increases. We also show that the dividend payout ratio exerts a negative inuence on property insurance coverage. This result is consistent with the view that firms with high payout ratio insure a smaller fraction of property because of cash flows in excess of investment needs, easy access to capital markets or both.

Keywords: Corporate Risk Management; Property Insurance (search for similar items in EconPapers)
JEL-codes: G22 G3 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2007-05
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Why firms purchase property insurance (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0716

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