Journal article
Financing and the Demand for Corporate Insurance
The Geneva papers on risk and insurance theory, Vol.18(2), pp.147-171
12/01/1993
DOI: 10.1007/BF01111467
Abstract
In this paper we examine the insurance decision of a firm with private information regarding its cash flows and insurable losses. We show that, even in the absence of bankruptcy costs and information production by insurers, the firm's attempts to hedge its information risk can induce it to demand insurance. If higher operating revenues are accompanied by a lower insurance risk, the firm will choose to self-insure. In contrast, if higher operating revenues are accompanied by a higher insurance risk, the firm will demand insurance. In fact, if its insurable losses are relatively small, the firm will fully insure its losses. Further, if there exists considerable uncertainty regarding the firm's insurance risk, the level of coverage demanded by the firm is dependent on its private information, with higher levels of coverage signaling favorable information regarding the firm's future operations.
Details
- Title: Subtitle
- Financing and the Demand for Corporate Insurance
- Creators
- MARTIN F. GraceMICHAEL J. Rebello
- Resource Type
- Journal article
- Publication Details
- The Geneva papers on risk and insurance theory, Vol.18(2), pp.147-171
- Publisher
- Kluwer Academic Publishers
- DOI
- 10.1007/BF01111467
- ISSN
- 0926-4957
- eISSN
- 1573-6954
- Number of pages
- 25
- Language
- English
- Date published
- 12/01/1993
- Academic Unit
- Finance
- Record Identifier
- 9984701253402771
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