Do Publicly Traded Property–Casualty Insurers Cater to the Stock Market?
Article first published online: 23 NOV 2011
The Journal of Risk and Insurance, 2011
Journal of Risk and Insurance
Volume 79, Issue 2, pages 415–430, June 2012
How to Cite
Ma, Y.-L. and Ren, Y. (2012), Do Publicly Traded Property–Casualty Insurers Cater to the Stock Market?. Journal of Risk and Insurance, 79: 415–430. doi: 10.1111/j.1539-6975.2011.01438.x
- Issue published online: 23 MAY 2012
- Article first published online: 23 NOV 2011
This article examines the catering theory in the insurance industry. We investigate whether managers of publicly traded insurers pursue a growth strategy catering to the stock market's preference. Two hypotheses are tested in this study: (1) an insurer will devote more efforts to increasing premium growth when the stock market places greater values on growth, and (2) this catering effect will be more pronounced at firms where managers have greater incentives to maximize short-term stock prices. We find evidence supporting both hypotheses. Our study discovers a new channel through which the stock market and executive compensation affect insurance companies’ business strategies and the insurance market. The implication of the interplay between insurers and the stock market is significant and deserves future research.