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Derivatives Use and Corporate Performance in the Life Insurance Industry
Journal of Insurance and Finance
2016, 27(3),
pp.81-115
DOI :10.23842/jif.2016.27.3.003
Publisher : Korea Insurance Research Institute
Research Area : Business Management
DOI :10.23842/jif.2016.27.3.003
Publisher : Korea Insurance Research Institute
Research Area : Business Management
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This paper investigates whether the Korean life insurance companies' use of derivatives has effectiveness as a risk management. Empirically, we confirm that the derivatives use has a significantly positive effect on the corporate performance measured by profitability. This effect is mainly observed when the purpose of the derivatives use is risk avoidance, and when the firm has relatively small scale of assets. Additionally, we find that the derivatives use reduces the distressed assets. In the mean time, among the various types of derivatives, the currency derivatives, forwards, futures, and swap have positive effect on corporate performance. This paper provides practical implications for the life insurance companies to minimize the risk and to maximize the profit by strategically using the derivatives.
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