We thank the valuable comments of Georges Dionne (the editor) and two anonymous reviewers that helped improve the article. The usual disclaimer applies.
Chief Executive Officer Incentives, Monitoring, and Corporate Risk Management: Evidence From Insurance Use
Article first published online: 3 MAR 2011
© The Journal of Risk and Insurance, 2011
Journal of Risk and Insurance
Volume 78, Issue 3, pages 551–582, September 2011
How to Cite
Adams, M., Lin, C. and Zou, H. (2011), Chief Executive Officer Incentives, Monitoring, and Corporate Risk Management: Evidence From Insurance Use. Journal of Risk and Insurance, 78: 551–582. doi: 10.1111/j.1539-6975.2011.01409.x
- Issue published online: 26 AUG 2011
- Article first published online: 3 MAR 2011
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.