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Hedging and Firm Value: Evidence from US Property-Liability Insurance Companies

  • Journal of Insurance and Finance
  • 2020, 31(4), pp.117-144
  • DOI : 10.23842/jif.2020.31.4.004
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management
  • Received : May 15, 2020
  • Accepted : November 20, 2020
  • Published : November 30, 2020

Sangyong Han 1

1보험연구원

Accredited

ABSTRACT

This study examines the effect of derivatives hedging on firm value in US publicly traded property-liability insurance firms. We find that derivatives hedging is positively related to insurer’s firm value. For non-hedging activities, derivatives usage is not found to significantly affect firm value. We also provide evidence that the positive effect of derivatives hedging on firm value is more pronounced for firms with a higher level of leverage and utilizing more reinsurance, and firms that are larger; however, the positive impact is weakened for firms that have more geographic concentration and a larger portion of long-tail lines.

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