Corporate Governance and Risk Taking: Evidence From the U.K. and German Insurance Markets

Abstract

We analyze the impact of factors related to corporate governance (i.e., compensation, monitoring, and ownership structure) on risk taking in the insurance industry. We measure asset, product, and financial risk in insurance companies and employ a structural equation model in which corporate governance is modeled as a latent factor. Based on this model, we present empirical evidence on the link between corporate governance and risk taking, considering insurers from two large European insurance markets. Higher levels of compensation, increased monitoring (more independent boards with more meetings), and more blockholders are associated with lower risk taking. Our empirical results provide justification for including factors related to corporate governance in insurance regulation.

Corporate Governance System and Entrepreneurial Orientation in the Banking Sector: Evidence from a Developing Country

“…From the findings, the board of directors of Nigerian banks generally The inverse relationship between board involvement and managerial risk appetite may appear contrary to common logic and expectations. However, this finding reinforces Eling and Marek's (2011) submission that managers increasingly become risk-averse with higher levels of board involvement expressed through monitoring and regular meetings. Further, Ogbechie & Koufopoulos (2010) observed that there is a high percentage (about 64%) composition of external directors of Nigerian banks owing to the common notion that outside directors are reservoirs of experience and knowledge which may not be possessed by managers.…”

“…Moreover, Eling and Marek (2011) conducted a study on two big European insurance markets and pointed out that an increase in compensation and monitoring in the governance structure translates to reduction in risk-taking proclivity.…”

The Moderating Role of Corporate Governance on the Relationship between a Firm’s Product Lifecycle and Risk-Taking

“…The Role of Corporate Governance The theory of the firm (Jensen & Meckling 1976) identifies three factors that can alleviate agency conflicts and also might affect risk-taking: management incentives, monitoring, and ownership structure (Eling & Marek 2014).The structure of the board has especially been identified as a driver of the firm's risk (Pathan 2009). Although corporate governance is about ensuring accountability of the management to minimize downside shareholder risk, it is also concerned with enabling managerial entrepreneurship so that the shareholders benefit from the upside potential of the firms (Keasey & Wright 1993;and Filatotchev et al 2006).…”

“…Although corporate governance is about ensuring accountability of the management to minimize downside shareholder risk, it is also concerned with enabling managerial entrepreneurship so that the shareholders benefit from the upside potential of the firms (Keasey & Wright 1993;and Filatotchev et al 2006). Eling & Marek (2014) presented an empirical evidence on the link between corporate governance and risk-taking, considering insurers from two large European insurance markets (UK and Germany). They found that higher levels of compensation, increased monitoring, and more block-holders are associated with lower risk-taking.…”

Good Practices in Corporate Governance: One-Size-Fits-All vs. Comply-or-Explain

“…The new strategies are flexible despite of host requirements. For example, the country-specific differences in risk potential propose a new strategy to comply with related regulatory model (Eling and Marek, 2009). …”