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Risks and Insurance in Mergers & Acquisitions

  • Crisisonomy
  • Abbr : KRCEM
  • 2020, 16(9), pp.85-104
  • DOI : 10.14251/crisisonomy.2020.16.9.85
  • Publisher : Crisis and Emergency Management: Theory and Praxis
  • Research Area : Social Science > Public Policy > Public Policy in general
  • Received : August 16, 2020
  • Accepted : September 4, 2020
  • Published : September 30, 2020

Kim, Changki 1,  KIM, SOYEUN 2,  SHIN DONGHOON 3

1고려대학교
2서울과학기술대학교
3인하대학교

Accredited

ABSTRACT

The purpose of this study is to examine the risk factors associated with mergers and acquisitions (M&A) and to introduce various M&A insurance that can be used to mitigate them. Using the M&A insurance data in South Korea, this study develops modeling of M&A risks to quantify and analyze the size of the risks. The main findings suggest that the losses in Korean domestic M&A insurance seems to be constant in frequency, but unpredictable in the extent of severity, which highlights the need of close attention to not only the overall mean but the fatness of the tails of the distribution of the losses. In particular, when calculating insurance premiums, it is necessary to consider the uncertainty of the tail from a conservative point of view by estimating VaR or CTE values as useful reference indicators. It is expected from this study that Korean companies and experts will gain more understanding about M&A risks and succeed in brokering M&A deals that can truly enhance firm value by employing risk management techniques including M&A insurance.

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This paper was written with support from the National Research Foundation of Korea.
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