We investigate the relationship between risk taking of life–health (LH) insurers and stability of their institutional ownership within a simultaneous equation system model. Three main results are obtained. First, stable institutional ownership of is associated with lower total risk of LH insurers, supporting the prudent-man law hypothesis. Second, when investors are sorted in terms of stringency of the prudent-man restrictions, their negative effect on risk holds for all, except insurance companies, as owners of LH insurers. Third, large institutional owners do not raise the riskiness of the investee-firms, as proposed by the large shareholder hypothesis. Regulatory implications are drawn.
Bibliographical noteThis article was presented at the ARIA meetings 2009 in Providence, Rhode Island.
CHENG, J., ELYASIANI, E., & JIA, J. J. (2011). Institutional ownership stability and risk taking : evidence from the life–health insurance industry. Journal of Risk and Insurance, 78(3), 609-641. https://doi.org/10.1111/j.1539-6975.2011.01427.x