The corporate purchase of property insurance : Chinese evidence

Hong ZOU; Mike B. ADAMS

doi:10.1016/j.jfi.2004.06.007

The corporate purchase of property insurance : Chinese evidence

Hong ZOU, Mike B. ADAMS

Department of Finance and Insurance

Research output: Journal Publications › Journal Article (refereed) › peer-review

58 Citations (Scopus)

Abstract

Using a panel data set (1997-1999) for 235 publicly listed companies in the People's Republic of China (PRC), this study tests empirically whether the purchase of property insurance mitigates principal-agent (agency) incentive conflicts. In contrast to prior studies, we first estimate a probit insurance participation decision model and then a fixed-effects insurance volume decision model (with Heckman's sample selection correction) in order to shed light on the determinants of both property insurance participation and volume decisions. Our results suggest that a major motivation for the corporate purchase of insurance in China appears to be the mitigation of agency conflicts. Additionally, various ownerships seem to have different impacts on the corporate purchase of insurance in China. Moreover, the results show that the same factor can have different impacts on the insurance participation and volume decisions, and that binding financial conditions may be a key factor accounting for such observed differences.

Original language	English
Pages (from-to)	165-196
Number of pages	32
Journal	Journal of Financial Intermediation
Volume	15
Issue number	2
DOIs	https://doi.org/10.1016/j.jfi.2004.06.007
Publication status	Published - 1 Apr 2006

Bibliographical note

We thank Anjan Thakor (Managing Editor), William Christie (Editor) and an anonymous referee for their helpful suggestions. The comments of Mike Buckle, Simon Gao, Philip Hardwick, Paul Klumpes, Clive Lennox, Damian Ward, Jason Xiao and Steve Young on earlier versions of this paper are also appreciated. The paper further benefited from the comments of participants at seminars hosted by the Accounting and Finance Group, Department of Economics, University of Bristol, UK, and the School of Finance and Law, University of Bournemouth, UK. In addition, suggestions received from delegates at the 2002 American Risk and Insurance Association Meeting, Montreal and the 2002 British Accounting Association Meeting, Jersey, substantially improved the paper. Data collection for this paper would not have been possible without the great help of Ye Xinhua (Hong Kong & Macao Securities Information Ltd., Shanghai), Yang Xiaochun and Ren Fuping (Chengdu Securities Ltd., Chengdu). Hong Zou is also grateful for the financial support from the Association of British Insurers. However, the usual disclaimer applies.

Keywords

Agency theory
Corporate sector
People's Republic of China
Property insurance

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10.1016/j.jfi.2004.06.007

Cite this

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title = "The corporate purchase of property insurance : Chinese evidence",

abstract = "Using a panel data set (1997-1999) for 235 publicly listed companies in the People's Republic of China (PRC), this study tests empirically whether the purchase of property insurance mitigates principal-agent (agency) incentive conflicts. In contrast to prior studies, we first estimate a probit insurance participation decision model and then a fixed-effects insurance volume decision model (with Heckman's sample selection correction) in order to shed light on the determinants of both property insurance participation and volume decisions. Our results suggest that a major motivation for the corporate purchase of insurance in China appears to be the mitigation of agency conflicts. Additionally, various ownerships seem to have different impacts on the corporate purchase of insurance in China. Moreover, the results show that the same factor can have different impacts on the insurance participation and volume decisions, and that binding financial conditions may be a key factor accounting for such observed differences.",

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N2 - Using a panel data set (1997-1999) for 235 publicly listed companies in the People's Republic of China (PRC), this study tests empirically whether the purchase of property insurance mitigates principal-agent (agency) incentive conflicts. In contrast to prior studies, we first estimate a probit insurance participation decision model and then a fixed-effects insurance volume decision model (with Heckman's sample selection correction) in order to shed light on the determinants of both property insurance participation and volume decisions. Our results suggest that a major motivation for the corporate purchase of insurance in China appears to be the mitigation of agency conflicts. Additionally, various ownerships seem to have different impacts on the corporate purchase of insurance in China. Moreover, the results show that the same factor can have different impacts on the insurance participation and volume decisions, and that binding financial conditions may be a key factor accounting for such observed differences.

AB - Using a panel data set (1997-1999) for 235 publicly listed companies in the People's Republic of China (PRC), this study tests empirically whether the purchase of property insurance mitigates principal-agent (agency) incentive conflicts. In contrast to prior studies, we first estimate a probit insurance participation decision model and then a fixed-effects insurance volume decision model (with Heckman's sample selection correction) in order to shed light on the determinants of both property insurance participation and volume decisions. Our results suggest that a major motivation for the corporate purchase of insurance in China appears to be the mitigation of agency conflicts. Additionally, various ownerships seem to have different impacts on the corporate purchase of insurance in China. Moreover, the results show that the same factor can have different impacts on the insurance participation and volume decisions, and that binding financial conditions may be a key factor accounting for such observed differences.

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The corporate purchase of property insurance : Chinese evidence

Abstract

Bibliographical note

Keywords

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