DOES BOARD INDEPENDENCE MATTER FOR CORPORATE INSURANCE HEDGING?

Authors


  • We thank the comments and suggestions of an anonymous referee, Gerald Gay (the editor), and participants at the All China Economics International Conference held in Hong Kong and a research seminar at the School of Business and Economics, University of Umeå, Sweden. Zou is grateful to the financial support of Lingnan University and City University of Hong Kong.

Abstract

We test the effect of board independence on corporate purchases of property insurance. We find that board independence increases the incidence of property insurance use but does not have a significant effect on the extent of property insurance use given that a firm decides to insure its assets. These findings are consistent with the argument that: (1) more independent boards view it necessary to have property insurance to manage asset-loss risks and (2) excessive insurance or insurance purchases induced by managerial risk aversion and/or self-interest does not benefit shareholders and so may not be supported by independent boards.

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