Does firm competitiveness affect corporate risk-taking?
ISSN: 0307-4358
Article publication date: 26 December 2022
Issue publication date: 22 June 2023
Abstract
Purpose
Few studies utilize insurance sector data to analyze how insurers' competitiveness affects their risk-taking decisions. To fill the research gap, this study aims to investigate the relationship between insurers’ competitiveness and risk-taking decisions.
Design/methodology/approach
This study employs unbalanced panel data for the US property-liability insurance companies from 2006 to 2019. Two-Stage estimation is applied to address the endogeneity issue, such as the Two-Step Generalized Method of Moments, General Two-Stage Least Square and Two-Stage Quantile Regression.
Findings
The regression analysis reveals that insurers' competitiveness in their risk-taking decisions is primarily negative. The finding suggests that insurers with low (high) competitiveness tend to take more (less) risk. This study sheds light on how insurers with low competitiveness may alter their risk preference, supporting the fundamental argument of the prospect theory, the CEO hubris argument, the risk-return theory and the risk-sensitivity theory.
Research limitations/implications
The critical findings of this study provide policy implications when evaluating and drafting insurance legislation. Regulators must pay close attention to insurers' riskier decisions while insurers with low competitiveness or during periods of economic recession.
Originality/value
This research contributes to the literature by assessing whether insurers' competitiveness influences their risk-taking decisions. The empirical findings suggest that insurers with low competitiveness take on greater risks to gamble for survivability and boost profits to strengthen their financial standing. The evidence indicates that insurers may risk-seeking or irrational decision-making when facing a competitive disadvantage.
Keywords
Acknowledgements
Funding: This work was supported by the Ministry of Science and Technology, Taiwan (Award Number: MOST 105-2410-H-324-001).
Citation
Chang, V.Y.L. (2023), "Does firm competitiveness affect corporate risk-taking?", Managerial Finance, Vol. 49 No. 7, pp. 1097-1112. https://doi.org/10.1108/MF-07-2022-0327
Publisher
:Emerald Publishing Limited
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