The financial leverage of Insurers subject to price regulation: evidence from Canada

Strauss, Jason David (2008): The financial leverage of Insurers subject to price regulation: evidence from Canada.

Abstract

The variation in the degree of price regulation in the property-liability insurance market in Canada varies across time and space, creating an opportunity to test a recurring theory in regulatory economics: that price regulated firms have higher levels of financial leverage. Using an instrumental variable for the stringency of price-regulation, this paper utilizes a panel data set of Canadian property-liability insurers over ten years of time, 1997-2006. The results support the theory but do not conclude on whether the increase in financial leverage is a strategic decision or a natural reaction to worsening business conditions brought-on by price-regulation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Price Regulation, Insurance, Financial Leverage, Capital Structure, Bankruptcy
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation

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