Capital structure in the property-liability insurance industry : tests of the tradeoff and pecking order theories
Document Type
Journal article
Source Publication
Journal of Insurance Issues
Publication Date
Spring 2012
Volume
35
Issue
1
First Page
1
Last Page
43
Publisher
Western Risk and Insurance Association
Keywords
Risk‐based capital, tradeoff theory, pecking order theory
Abstract
This study examines whether property-liability insurers have an optimum capital structure by testing the tradeoff and pecking order theories for this industry. Capital structure is measured with the net premiums written to surplus ratio, and alternatively, with the liability to asset ratio. The results indicate that the tradeoff theory dominates the pecking order theory in explaining property-liability insurer capital structure. Further, mutual and stock insurers appear to have different target capital structures, as agency theory suggests. Finally, mutual and stock insurers do not adjust at different speeds to their optimal capital structure.
Print ISSN
15316076
E-ISSN
23324244
Publisher Statement
Copyright © 2012 by the Western Risk and Insurance Association. Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Cheng, J., & Weiss, M. A. (2012). Capital structure in the property-liability insurance industry: Tests of the tradeoff and pecking order theories. Journal of Insurance Issues, 35(1), 1-43.