A Stranger-Originated Life Insurance (STOLI) transaction arises when a life insurance policy is effectively procured by a stranger, usually a third-party investor unrelated to the insured. Despite the growing frequency and popularity of STOLI transactions, there has been much discussion, but a...

This study examines whether property-liability insurers have an optimum capital structure by testing the tradeoff and pecking order theories for this industry. Capital structure is measured with the net premiums written to surplus ratio, and alternatively, with the liability to asset ratio. The...

Many who purchase insurance understand that by reporting covered losses to their insurers they increase the chances of future premium increases or reductions in insurance coverage. If under such circumstances a policyholder decides not to report an otherwise covered loss, the policyholder is...

Financial researchers initially regarded hedging activities as a means to reduce total firm risk, which often is defined in terms of cash flow volatility. More recently, researchers have focused on the strategic allocation of risk. Direct tests of risk allocation have been problematic, however,...

The theory of adverse selection in insurance markets has been enormously influential among scholars, regulators, and the judiciary. But empirical support for adverse selection has been much less persuasive, and several recent studies have found little or no evidence of such selection in...

Reinsurance is a transaction insurance firms use to hedge risk. Existing studies have only investigated the demand for reinsurance. Thus, we do not have direct evidence on whether the use of reinsurance creates value. Our study provides this evidence. We find a positive relation between the use...

This article models a board of directors consisting of either pure directors or shareholder directors. Pure directors only receive a fee for their service to the board, while shareholder directors receive corporate equity in addition to the fee. The analysis shows that: (1)...

This study examines the role of information asymmetry on insurer price adjustments in response to earnings surprises and the effects of competing measures of earnings surprises on the value of insurers during 1998–2007. Using the surprise portfolio approach, we find that investors in insurance...