Analyst Coverage and Corporate Risk-Taking: Evidence From Property-Casualty Insurance Firms
59 Pages Posted: 11 Feb 2021
Date Written: February 3, 2021
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.
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