Analyst Coverage and Corporate Risk-Taking: Evidence From Property-Casualty Insurance Firms

59 Pages Posted: 11 Feb 2021 Last revised: 28 Jun 2021

See all articles by Tao Chen

Tao Chen

Nanyang Business School, Nanyang Technological University

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University

Pingyi Lou

Fudan University - School of Economics

Andreas Milidonis

University of Cyprus - Department of Accounting and Finance

Date Written: February 3, 2021

Abstract

We test for the causal impact of analyst coverage on corporate risk-taking in the property and casualty insurance sector, using the exogenous change in analyst coverage introduced by broker closures and mergers. We find that a decrease in analyst coverage promotes an increase in insurers’ risk-taking, which is mainly driven by insurers with smaller initial analyst coverage and those operating in an environment of lower product market competition. We also show that the decrease in analyst coverage causes more risky investment behaviors, more risky underwriting, and less conservative reserving practice.

Keywords: Analyst Coverage, Risk-Taking, Insurance

JEL Classification: G22, G32.

Suggested Citation

Chen, Tao and Kamiya, Shinichi and Lou, Pingyi and Milidonis, Andreas, Analyst Coverage and Corporate Risk-Taking: Evidence From Property-Casualty Insurance Firms (February 3, 2021). Nanyang Business School Research Paper No. 21-09, Available at SSRN: https://ssrn.com/abstract=3778633 or http://dx.doi.org/10.2139/ssrn.3778633

Tao Chen

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Shinichi Kamiya

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Pingyi Lou

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Andreas Milidonis (Contact Author)

University of Cyprus - Department of Accounting and Finance ( email )

P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 22 893 626 (Phone)

HOME PAGE: http://www.ucy.ac.cy/~amilidon/

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