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Risk management and the cost of equity: evidence from the United Kingdom’s non-life insurance market
,
Mike Adams,
Joy Jia
The European Journal of Finance, Volume: 28, Issue: 6, Pages: 551 - 570
Swansea University Authors:
Vineet Upreti , Joy Jia
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DOI (Published version): 10.1080/1351847x.2021.1936588
Abstract
We investigate the effect of risk management (reinsurance) on the corporate cost of equity using panel data drawn from the United Kingdom’s (UK) non-life insurance industry. Our results show that use of reinsurance lowers the cost of equity but that the relation is non-linear. We find that the rate...
| Published in: | The European Journal of Finance |
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| ISSN: | 1351-847X 1466-4364 |
| Published: |
Informa UK Limited
2021
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| Online Access: |
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa56953 |
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| Abstract: |
We investigate the effect of risk management (reinsurance) on the corporate cost of equity using panel data drawn from the United Kingdom’s (UK) non-life insurance industry. Our results show that use of reinsurance lowers the cost of equity but that the relation is non-linear. We find that the rate of reduction declines as the level of premiums ceded relative to total gross premiums written increases. We also find that the reinsurance-cost of equity relation is moderated by the risk of financial distress/bankruptcy. This moderating relation is robust to the use of three alternative measures of financial distress and bankruptcy risk. |
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| Keywords: |
Risk management; cost of equity; reinsurance; insurance; bankruptcy; UK |
| College: |
Faculty of Humanities and Social Sciences |
| Issue: |
6 |
| Start Page: |
551 |
| End Page: |
570 |