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TILEC Work in Progress: Paul Pudschedl

The usage of Captive insurance structures by non-financial corporations
10:45-11:45, T 50A

Captive insurance is an increasingly popular risk management tool used by firms of all sizes and across all industries. The literature on hedging has shown that because of market imperfections, hedging activities by firms can have a positive financial impact. Yet despite the enormous theoretical and empirical literature on firm hedging, the extent to which captive insurance lowers the impact of risk on the financial performance of the firm is unknown. Managers often claim that captive insurance usage will yield similar benefits as hedging. Using a panel data set consisting of annual financial data of non-financial corporations, I document the usage of captive insurance structures by firms and the impact on firm financials. Consistent with my hypotheses, I find strong evidence of a positive relationship between firm usage of captive insurance structures and lower borrowing costs and decreased marginal tax rates as well as with higher dividend payouts and more spending on intangible asset development. The results suggest that captive insurance yields similar benefits to firms as hedging.

When: 02 May 2018 10:45

End date: 02 May 2018 11:45

Where: Tias building