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The financial leverage of Insurers subject to price regulation: evidence from Canada

Jason Strauss

MPRA Paper from University Library of Munich, Germany

Abstract: The variation in the degree of price regulation in the property-liability insurance market in Canada varies across time and space, creating an opportunity to test a recurring theory in regulatory economics: that price regulated firms have higher levels of financial leverage. Using an instrumental variable for the stringency of price-regulation, this paper utilizes a panel data set of Canadian property-liability insurers over ten years of time, 1997-2006. The results support the theory but do not conclude on whether the increase in financial leverage is a strategic decision or a natural reaction to worsening business conditions brought-on by price-regulation.

Keywords: Price Regulation; Insurance; Financial Leverage; Capital Structure; Bankruptcy (search for similar items in EconPapers)
JEL-codes: G22 G28 G32 G33 (search for similar items in EconPapers)
Date: 2008-09-30
New Economics Papers: this item is included in nep-cfn, nep-ias and nep-reg
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