The Impact of Corporate Governance on Risk Taking in European Insurance Industry
The aim of this paper is to develop an empirical
research on the nature and consequences of corporate governance on
Eurozone Insurance Industry risk taking attitude. More particularly,
we analyzed the effect of public ownership on risk taking with
respect to privately held Insurance Companies. We also analyzed the
effects on risk taking attitude of different degrees of ownership
concentration, directors compensation, and the dimension/diversity of
the Board of Directors. Our results provide quite strong evidence that,
coherently with the Agency Theory, publicly traded insurance
companies with more concentrated ownership are less risky than the
corresponding privately held.
[1] H. Abdullah, B. Valentine, “Fundamental and ethics theories of
corporate governance”, in Middle Eastern Finance and Economics
Journal, 2009.
[2] B. Ballou, D.L. Heitger, D. Stoel, “How Boards of Directors Perceive
Risk Management Information”, in Management Accounting Quarterly,
vol. 12, 2001.
[3] E. G. Baranoff, S. Papadopoulos, T. W. Sager, “Capital and Risk
Revisited: A Structural Equation Model Approach for Life Insurers”, in
Journal of Risk and Insurance, 2007, pp. 653–681.
[4] E. G. Baranoff, T. W. Sager T. W., “Do Life Insurers' Asset Allocation
Strategies Influence Performance within the Enterprise Risk
Framework?”, Geneva Papers on Risk and Insurance, 2009, pp. 242–
259.
[5] K. H. Borch, H. Loubergé, “Risk, information and insurance”, Springer
Science & Business Media, 1990.
[6] N. Boubakri, “Corporate Governance and Issues From The Insurance
Industry”, in Journal of Risk and Insurance, 2011, pp. 501–518.
[7] J. Cheng, E. Elyasiani, J. Jia, “Institutional Ownership Stability and Risk
Taking: Evidence from the Life-Health Insurance Industry”, in Journal
of Risk and Insurance, 2011, 78(3): 609-641.
[8] S. Cheng, “Board size and the variability of corporate performance”, in
Journal of Financial Economics, 2008, pp. 157-176.
[9] M. H. Cho, “Ownership structure, investment and the corporate value:
an empirical analysis”, in Journal of Financial Economics, 1998, 47(1),
pp. 103-121.
[10] S. Claessens, S. Djankov, J. Fan, L. Lang, “Disentangling the incentive
and entrenchment effects of large shareholdings”, in Journal of Finance,
2002, 57(6), pp. 2741-71.
[11] C.R. Cole,E. He, K.A. McCullough, D.W. Sommer, “Separation of
Ownership and Management: Implications for Risk-Taking Behavior”,
in Risk Management and Insurance Review, 2011, 14(1): 49–71.
[12] COSO - Committee of Sponsoring Organizations of the Treadway
Commission, “Enterprise Risk Management – Integrated Framework”,
September 2004, New York.
[13] COSO - Committee of Sponsoring Organizations of the Treadway
Commission, “Effective Enterprise Risk Oversight – The Role of the
Board of Directors”, New York, 2009.
[14] J. E. Core, R. W. Holthausen, D. F. Larcker, “Corporate Governance,
Chief Executive Officer Compensation, and Firm Performance”, in
Journal of Financial Economics, 1999, 51(3), pp. 371–406.
[15] J. D. Cummins, D. W. Sommer, “Capital and Risk in Property-Liability
Insurance Markets”, in Journal of Banking & Finance, 1996, 20(6):
1069–1092.
[16] D. R. Dalton, C. M. Dalton, “Integration Of Micro And Macro Studies
On Governance Research: CEO Duality, Board Composition And
Financial Performance”, in Journal of Management, 2011, 37(2), pp.
404-411.
[17] D. Denis, J. McConnell, “Introduction To International Corporate
Governance”, in “Governance: an international perspective”, vol. I,
London, Edward Elgar Publishing, 2005.
[18] M. Eling, S. Marek, “Corporate Governance and Risk Taking: Evidence
from the U.K. and German Insurance Markets”, University of St. Gallen,
Working Papers on Risk Management and Insurance, n. 103, 2011
[19] E. F. Fama, M.C. Jensen, “Separation Of Ownership And Control”, in
Journal of Law & Economics, 1983, 26(2), pp. 301-325.
[20] J. Farinha, “Corporate Governance: A Review Of The Literature”,
Working Paper, University of Porto, 2003.
[21] J. Farinha, “Dividend Policy, Corporate Governance And The
Managerial Entrenchment Hypothesis: An Empirical Analysis”, in
Journal of Business Finance and Accounting, 2003, pp. 1173-1209.
[22] K. A. Farrell, A. Hersch, “Additions To Corporate Boards: The Effect
Of Gender”, in Journal of Corporate Finance, 2005, 11(1-2), pp. 85–
106.
[23] M. Grace, R. Klein, “Insurance regulation: the need for policy reform”,
Working Paper, Georgia State University, 2008.
[24] E. Grace, “Contracting Incentives and Compensation for Property-
Liability Insurer Executives”, in Journal of Risk and Insurance, 2004,
71(2), pp. 285–307.
[25] S. R. Gray, A. Cannella, “The Role of Risk in Executive
Compensation”, in Journal of Management, 1997, 23(4), pp. 517–540.
[26] C. Himmelberg, G. Hubbard, D. Palia, “Understanding The
Determinants Of Managerial Ownership And The Link Between
Ownership And Performance”, in Journal of Financial Economics,
1999, 53(3), pp. 353-384.
[27] M. Jensen, W. Meckling, “Theory Of The Firm: Managerial Behaviour,
Agency Costs And Ownership Structure”, in Journal of Financial
Economics, 1976, pp. 305-360.
[28] R. La Porta, F. Lopez-de-Silanes, A. Shleifer, R.W. Vishny, “Investor
protection and corporate valuation”, in Journal of Finance, 2002, 57(3),
pp. 1147-1170.
[29] Y. Lai, W.C. Lin, “Corporate Governance and the Risk-taking behavior
in the Property/Liability Insurance Industry”, Working Paper, Taiwan
University, 2008.
[30] M. Lipton, D. A. Neff, A. R. Brownstein, S .A. Rosenblum, D.
Emmerich, S. L. Fain, “Risk Management and the Board of Directors”,
in Bank and Corporate Governance Law Reporter, 2011, vol. 45(6), pp.
793-799.
[31] M. Lipton, “Risk Management and the Board of Directors”, in The
Harvard Law School Forum on Corporate Governance and Financial
Regulation, 2009, December 17, pp. 1-13.
[32] M. Maingot, T. Quon, D. Zéghal, “An Analysis Of The Effects Of The
Financial Crisis On Enterprise Risk Management In The Canadian
Financial Sector”, in Journal of Finance and Risk Perspectives, 2014,
Vol. 3(2) pp. 10-26.
[33] M. Marimuthu, I. Koladaisamy, “Ethnic And Gender Diversity In Board
Of Directors And Their Relevance To Financial Performance Of
Malaysian Companies”, in Journal of Sustainable Development, 2009,
2(3), pp. 139-148.
[34] M. Marimuthu, I. Koladaisamy, “Demographic Diversity In Top Level
Management And Its Implications On Firms Financial Performance. An
Empirical Discussion”, in International Journal of Business and
Management, 2009, 4(6), pp. 176-188.
[35] D. Mayers, W. Smith, “Compensation and Board Structure: evidence
from insurance industry”, in Journal of Risk and Insurance, 2010, 77(2),
pp. 297-327.
[36] F. Modigliani, M. Miller, “The Cost of Capital, Corporation Finance and
the Theory of Investment”, in The American Economic Review, 1958,
48(3), pp. 261–297.
[37] N. Najjar, “The Impact Of Corporate Governance On The Insurance
Firm’s Performance In Bahrain”, in International Journal of Learning &
Development, 2012 [38] J. Piotroski, D. Roulstone, “The influence of analysts, institutional
investors and insiders on the incorporation of market, industry and firm
specific information into stock prices”, in Accounting Review, 2004, pp.
1119-1151.
[39] J. Podder, M. Skully, B. Kym, “Incentives and risk taking: evidence
from listed US insurance companies”, Working Paper, Monash
University, 2013.
[40] R. K. Sah, J. Stiglitz, “The architecture of Economic Systems:
Hierarchies and Polyarchies”, in American Economic Review, 1986, 76,
pp. 716-727.
[41] R. K. Sah, J. Stiglitz, “The quality of Managers in Centralized Versus
Decentralized Organizations”, in Quarterly Journal of Economics, 1991,
pp. 289-295.
[42] A. U. Sanda, T. Garba, A. S. Mikailu, “Board Independence And Firm
Financial Performance, Evidence From Nigeria”, Centre for the Study of
African Economics (CSAE) Conference 2008, University of Oxford,
March, 2008.
[43] SEC, Annual Report and Accounts 2004, Abuja Nigeria.
[44] N. P. Swartz, S. Firer, “Board structure and intellectual capital
performance in South Africa”, in Meditari Accountancy Research, 2005,
vol. 13(2), pp. 145-166.
[45] S. Tzafrir, “A universalistic perspective for explaining the relationship
between HRM practices and firm performance at different points in
time”, in Journal of Managerial Psychology, vol. 21 (2), 2005, pp. 109-
130.
[46] S. M. Williams, “Diversity in corporate governance and its impact on
intellectual capital performance in emerging economy”, Discussion
Paper N. 5, Corporate Governance and Intellectual Capital Archive,
Singapore Management University, 2000.
[1] H. Abdullah, B. Valentine, “Fundamental and ethics theories of
corporate governance”, in Middle Eastern Finance and Economics
Journal, 2009.
[2] B. Ballou, D.L. Heitger, D. Stoel, “How Boards of Directors Perceive
Risk Management Information”, in Management Accounting Quarterly,
vol. 12, 2001.
[3] E. G. Baranoff, S. Papadopoulos, T. W. Sager, “Capital and Risk
Revisited: A Structural Equation Model Approach for Life Insurers”, in
Journal of Risk and Insurance, 2007, pp. 653–681.
[4] E. G. Baranoff, T. W. Sager T. W., “Do Life Insurers' Asset Allocation
Strategies Influence Performance within the Enterprise Risk
Framework?”, Geneva Papers on Risk and Insurance, 2009, pp. 242–
259.
[5] K. H. Borch, H. Loubergé, “Risk, information and insurance”, Springer
Science & Business Media, 1990.
[6] N. Boubakri, “Corporate Governance and Issues From The Insurance
Industry”, in Journal of Risk and Insurance, 2011, pp. 501–518.
[7] J. Cheng, E. Elyasiani, J. Jia, “Institutional Ownership Stability and Risk
Taking: Evidence from the Life-Health Insurance Industry”, in Journal
of Risk and Insurance, 2011, 78(3): 609-641.
[8] S. Cheng, “Board size and the variability of corporate performance”, in
Journal of Financial Economics, 2008, pp. 157-176.
[9] M. H. Cho, “Ownership structure, investment and the corporate value:
an empirical analysis”, in Journal of Financial Economics, 1998, 47(1),
pp. 103-121.
[10] S. Claessens, S. Djankov, J. Fan, L. Lang, “Disentangling the incentive
and entrenchment effects of large shareholdings”, in Journal of Finance,
2002, 57(6), pp. 2741-71.
[11] C.R. Cole,E. He, K.A. McCullough, D.W. Sommer, “Separation of
Ownership and Management: Implications for Risk-Taking Behavior”,
in Risk Management and Insurance Review, 2011, 14(1): 49–71.
[12] COSO - Committee of Sponsoring Organizations of the Treadway
Commission, “Enterprise Risk Management – Integrated Framework”,
September 2004, New York.
[13] COSO - Committee of Sponsoring Organizations of the Treadway
Commission, “Effective Enterprise Risk Oversight – The Role of the
Board of Directors”, New York, 2009.
[14] J. E. Core, R. W. Holthausen, D. F. Larcker, “Corporate Governance,
Chief Executive Officer Compensation, and Firm Performance”, in
Journal of Financial Economics, 1999, 51(3), pp. 371–406.
[15] J. D. Cummins, D. W. Sommer, “Capital and Risk in Property-Liability
Insurance Markets”, in Journal of Banking & Finance, 1996, 20(6):
1069–1092.
[16] D. R. Dalton, C. M. Dalton, “Integration Of Micro And Macro Studies
On Governance Research: CEO Duality, Board Composition And
Financial Performance”, in Journal of Management, 2011, 37(2), pp.
404-411.
[17] D. Denis, J. McConnell, “Introduction To International Corporate
Governance”, in “Governance: an international perspective”, vol. I,
London, Edward Elgar Publishing, 2005.
[18] M. Eling, S. Marek, “Corporate Governance and Risk Taking: Evidence
from the U.K. and German Insurance Markets”, University of St. Gallen,
Working Papers on Risk Management and Insurance, n. 103, 2011
[19] E. F. Fama, M.C. Jensen, “Separation Of Ownership And Control”, in
Journal of Law & Economics, 1983, 26(2), pp. 301-325.
[20] J. Farinha, “Corporate Governance: A Review Of The Literature”,
Working Paper, University of Porto, 2003.
[21] J. Farinha, “Dividend Policy, Corporate Governance And The
Managerial Entrenchment Hypothesis: An Empirical Analysis”, in
Journal of Business Finance and Accounting, 2003, pp. 1173-1209.
[22] K. A. Farrell, A. Hersch, “Additions To Corporate Boards: The Effect
Of Gender”, in Journal of Corporate Finance, 2005, 11(1-2), pp. 85–
106.
[23] M. Grace, R. Klein, “Insurance regulation: the need for policy reform”,
Working Paper, Georgia State University, 2008.
[24] E. Grace, “Contracting Incentives and Compensation for Property-
Liability Insurer Executives”, in Journal of Risk and Insurance, 2004,
71(2), pp. 285–307.
[25] S. R. Gray, A. Cannella, “The Role of Risk in Executive
Compensation”, in Journal of Management, 1997, 23(4), pp. 517–540.
[26] C. Himmelberg, G. Hubbard, D. Palia, “Understanding The
Determinants Of Managerial Ownership And The Link Between
Ownership And Performance”, in Journal of Financial Economics,
1999, 53(3), pp. 353-384.
[27] M. Jensen, W. Meckling, “Theory Of The Firm: Managerial Behaviour,
Agency Costs And Ownership Structure”, in Journal of Financial
Economics, 1976, pp. 305-360.
[28] R. La Porta, F. Lopez-de-Silanes, A. Shleifer, R.W. Vishny, “Investor
protection and corporate valuation”, in Journal of Finance, 2002, 57(3),
pp. 1147-1170.
[29] Y. Lai, W.C. Lin, “Corporate Governance and the Risk-taking behavior
in the Property/Liability Insurance Industry”, Working Paper, Taiwan
University, 2008.
[30] M. Lipton, D. A. Neff, A. R. Brownstein, S .A. Rosenblum, D.
Emmerich, S. L. Fain, “Risk Management and the Board of Directors”,
in Bank and Corporate Governance Law Reporter, 2011, vol. 45(6), pp.
793-799.
[31] M. Lipton, “Risk Management and the Board of Directors”, in The
Harvard Law School Forum on Corporate Governance and Financial
Regulation, 2009, December 17, pp. 1-13.
[32] M. Maingot, T. Quon, D. Zéghal, “An Analysis Of The Effects Of The
Financial Crisis On Enterprise Risk Management In The Canadian
Financial Sector”, in Journal of Finance and Risk Perspectives, 2014,
Vol. 3(2) pp. 10-26.
[33] M. Marimuthu, I. Koladaisamy, “Ethnic And Gender Diversity In Board
Of Directors And Their Relevance To Financial Performance Of
Malaysian Companies”, in Journal of Sustainable Development, 2009,
2(3), pp. 139-148.
[34] M. Marimuthu, I. Koladaisamy, “Demographic Diversity In Top Level
Management And Its Implications On Firms Financial Performance. An
Empirical Discussion”, in International Journal of Business and
Management, 2009, 4(6), pp. 176-188.
[35] D. Mayers, W. Smith, “Compensation and Board Structure: evidence
from insurance industry”, in Journal of Risk and Insurance, 2010, 77(2),
pp. 297-327.
[36] F. Modigliani, M. Miller, “The Cost of Capital, Corporation Finance and
the Theory of Investment”, in The American Economic Review, 1958,
48(3), pp. 261–297.
[37] N. Najjar, “The Impact Of Corporate Governance On The Insurance
Firm’s Performance In Bahrain”, in International Journal of Learning &
Development, 2012 [38] J. Piotroski, D. Roulstone, “The influence of analysts, institutional
investors and insiders on the incorporation of market, industry and firm
specific information into stock prices”, in Accounting Review, 2004, pp.
1119-1151.
[39] J. Podder, M. Skully, B. Kym, “Incentives and risk taking: evidence
from listed US insurance companies”, Working Paper, Monash
University, 2013.
[40] R. K. Sah, J. Stiglitz, “The architecture of Economic Systems:
Hierarchies and Polyarchies”, in American Economic Review, 1986, 76,
pp. 716-727.
[41] R. K. Sah, J. Stiglitz, “The quality of Managers in Centralized Versus
Decentralized Organizations”, in Quarterly Journal of Economics, 1991,
pp. 289-295.
[42] A. U. Sanda, T. Garba, A. S. Mikailu, “Board Independence And Firm
Financial Performance, Evidence From Nigeria”, Centre for the Study of
African Economics (CSAE) Conference 2008, University of Oxford,
March, 2008.
[43] SEC, Annual Report and Accounts 2004, Abuja Nigeria.
[44] N. P. Swartz, S. Firer, “Board structure and intellectual capital
performance in South Africa”, in Meditari Accountancy Research, 2005,
vol. 13(2), pp. 145-166.
[45] S. Tzafrir, “A universalistic perspective for explaining the relationship
between HRM practices and firm performance at different points in
time”, in Journal of Managerial Psychology, vol. 21 (2), 2005, pp. 109-
130.
[46] S. M. Williams, “Diversity in corporate governance and its impact on
intellectual capital performance in emerging economy”, Discussion
Paper N. 5, Corporate Governance and Intellectual Capital Archive,
Singapore Management University, 2000.
@article{"International Journal of Business, Human and Social Sciences:71943", author = "Francesco Venuti and Simona Alfiero", title = "The Impact of Corporate Governance on Risk Taking in European Insurance Industry", abstract = "The aim of this paper is to develop an empirical
research on the nature and consequences of corporate governance on
Eurozone Insurance Industry risk taking attitude. More particularly,
we analyzed the effect of public ownership on risk taking with
respect to privately held Insurance Companies. We also analyzed the
effects on risk taking attitude of different degrees of ownership
concentration, directors compensation, and the dimension/diversity of
the Board of Directors. Our results provide quite strong evidence that,
coherently with the Agency Theory, publicly traded insurance
companies with more concentrated ownership are less risky than the
corresponding privately held.", keywords = "Agency theory, corporate governance, insurance
companies, risk taking.", volume = "10", number = "1", pages = "188-7", }
