Intangible Assets, Going-for-Broke and Asset Risk Taking of Property and Liability Insurance Firms

36 Pages Posted: 11 Aug 2006

See all articles by Tong Yu

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Bing-Xuan Lin

University of Rhode Island

Henry R. Oppenheimer

University of Rhode Island - Area of Finance and Insurance

Xuanjuan Chen

Shanghai University of Finance and Economics

Date Written: August 2006

Abstract

Intangible assets, known as franchise value in the insurance industry, are critical for insurance companies to acquire new business and survive the fierce market competition. In this study, we analyze how the incentives to protect intangible assets and to go for broke jointly affect their asset risk taking behavior of property and liability insurers. With a simple model, we demonstrate that insurers' incentive to protect their intangible assets gives rise to an inverse relation between intangible assets and asset risk. We also show that high-leverage insurers are less inclined to protect their intangible assets because they are more likely to go for broke. Our empirical findings support these predictions. We find that insurers' investment in risky assets and the volatility of asset portfolio are inversely related to intangible assets. In addition, consistent with the going-for-broke argument, high-leverage insurers' asset risk is less responsive to intangible assets than that of low-leverage insurers.

Keywords: intangible assets, franchise value, gambling, asset allocation, insurance

Suggested Citation

Yu, Tong and Lin, Bing-Xuan and Oppenheimer, Henry R. and Chen, Xuanjuan, Intangible Assets, Going-for-Broke and Asset Risk Taking of Property and Liability Insurance Firms (August 2006). Available at SSRN: https://ssrn.com/abstract=923653 or http://dx.doi.org/10.2139/ssrn.923653

Tong Yu (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

Bing-Xuan Lin

University of Rhode Island ( email )

7 Lippitt Rd
Kingston, RI 02881
United States
401-874-4895 (Phone)
401-874-4312 (Fax)

Henry R. Oppenheimer

University of Rhode Island - Area of Finance and Insurance ( email )

Callentine Hall
7 Lippitt Road
Kingston, RI 02881-0802
United States

Xuanjuan Chen

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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