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Chief Executive Officer Incentives, Monitoring, and Corporate Risk Management: Evidence From Insurance Use
Author(s) -
Adams Mike,
Lin Chen,
Zou Hong
Publication year - 2011
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2011.01409.x
Subject(s) - corporate governance , business , incentive , chief executive officer , context (archaeology) , accounting , property insurance , corporate title , publicity , finance , insurance policy , general insurance , economics , marketing , management , paleontology , biology , microeconomics
Corporate governance and risk management issues have received prominent publicity in recent years following several major company failures such as Bear Stearns and Lehman Brothers. While prior studies have examined this issue within the context of derivatives’ trading, little is known regarding the linkage between corporate governance and alternative corporate risk management activities such as insurance. Using a detailed firm survey conducted by the World Bank (2004), we examine the impacts of various governance monitoring mechanisms and chief executive officer (CEO) characteristics on the corporate insurance decision. Overall, our results suggest that both monitoring mechanisms and managerial incentives induce the corporate purchase of property insurance. However, the purchase of property insurance for managerial self‐interest is only prevalent in firms subject to lax monitoring, and the determinants of insurance purchases are more in line with the prediction of the economic theory in firms with strong monitoring. In addition, our study contributes a number of new insights into the determinants of corporate purchase of property insurance.