Large Losses, Risk Management and Stock Prices

Sprecher, C. Ronald; Pertl, Mars A.

doi:10.2307/252419

Cited by 38 publications

(11 citation statements)

References 18 publications

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“…In addition, the findings of a continued price decline that persists for several days after the event, and the subsequent reversal, is similar in nature to the stock price reversal observed by Davidson et al (1987). At the same time, the results are contrary to the findings of Sprecher and Pertl (1983), who study a cross section of industries and observe that large losses had a negative effect on stock returns with no reversal in the first few days following the losses.…”

Section: Introductionmentioning

confidence: 39%

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On the Stock Market's Reaction to Major Railroad Accidents

Walker¹,

Pukthuanthong²,

Barabanov³

2010

J Transp Res Forum

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Section: Introductionmentioning

confidence: 39%

“…Sprecher and Pertl (1983) investigate the impact of large losses on firms in a variety of industry sectors. A large loss is broadly defined as the loss of property, the loss of productive capacity, or a large liability claim that is expected to result in damages of at least 10% of the affected firm's total net worth.…”

Section: Discussionmentioning

confidence: 99%

On the Stock Market's Reaction to Major Railroad Accidents

Walker¹,

Pukthuanthong²,

Barabanov³

2010

J Transp Res Forum

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“…The effect of catastrophe on insurer's stock prices is widely cited (Sprecher and Pearl, 1983; Davidson, Chandy, and Cross, 1987; Shelor, Anderson, and Cross, 1990; Aiuppa, Carney, and Krueger, 1993). In general, the empirical evidence suggests that insurers stock prices decline in response to the loss effect of hurricanes, particularly for insurers with more regional exposure (e.g., Lamb, 1995, 1998).…”

Section: Resultsmentioning

confidence: 99%

Capitalizing on Catastrophe: Short Selling Insurance Stocks Around Hurricanes Katrina and Rita

Blau

Ness

Wade

2008

J of Risk & Insurance

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We develop several hypotheses regarding short-selling activity around Hurricanes Katrina and Rita. We find that abnormal short selling does not increase until 2 trading days after the landfall of Katrina and that short-selling activity is much more significant around Rita. We find a substantial increase in short-selling activity in the trading days prior to the landfall of Rita and relatively less short-selling activity in the trading days after landfall. There is little evidence that suggests that traders short insurance stocks with more potential exposure in the Gulf region than other insurance stocks in the days before landfall.

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“…Examples of these issues include regulatory changes (Schwert 1981;Binder 1985;Chen and D'Arcy 1986;Moore and Schmit 1989;Horton and Macve 1998;Marlett and Pacini 1999), changes in business strategies (VanDerhei 1987;Impson and Karafiath 1992;Akhigbe, Borde, and Madura 1993;McNamara et al 1997;Akhigbe and Madura 2001), as well as the reporting of increases in liabilities or large losses (Sprecher and Pertl 1983;Davidson, Chandy, and Cross 1987;Baginski, Corbett, and Ortega 1991;Shelor, Anderson, and Cross 1992;Lamb 1995;Cagle 1996). In the banking area, studies such as McNichols and Wilson (1988), Beaver et al (1989), Elliot, Hanna, and Shaw (1991), Griffin and Wallach (1991), and Wahlen (1994) have analyzed the information content related to the announcements of increased reserves for loan loss reserve changes.…”

Section: Prior Literaturementioning

confidence: 99%

The Impact of Asbestos and Environmental Reserves Increases on Shareholder Wealth

Colquitt

Hoyt

McCullough

2006

North American Actuarial Journal

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Between 1992 and 2001 significant reserves increase announcements were made by several major property/liability insurers. These reserves increases were for the purpose of recognizing expected asbestos and environmental (A&E) liability. Although most analysts agree that U.S. insurers are underreserved for asbestos and environmental liability, how the market reacts to an insurer's announcement of an increase in these reserves has not been analyzed. An insurer that is significantly underreserved is likely to be viewed by the market as lacking financial stability for the long term. However, when a company increases its reserves, there is a charge to income and a reduction in capital. If surplus is diminished sufficiently as a result of the increased reserving, regulatory attention and eroding shareholder and market confidence could result as well. By calculating the sample insurers' cumulative abnormal returns surrounding the largest asbestos and environmental reserves increase announcements made between 1992 and 2001, the study estimates and documents the market's reaction to these reserves increase announcements. We further explore the potential impact of additional asbestos and environmental liability exposure reporting requirements. Starting with 1995 statutory annual accounting statements, Footnote 24 required additional reporting by insurers of their asbestos and environmental liability exposure (1995 statements were publicly available by the end of the first quarter of 1996). When looking at reserves increase announcements prior to this additional reporting requirement, we find that most insurers announcing large increases in asbestos and environmental reserves prior to 1996 experience a significant reduction in stock price in the days surrounding their announcement. However, consistent with the notion that the additional accounting disclosure requirements after 1995 (Footnote 24) provide valuable information on insurers' exposure, we find that the announcement of A&E reserves increases after 1995 had no statistically significant effect on the market value of announcing insurers.

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Large Losses, Risk Management and Stock Prices

Cited by 38 publications

References 18 publications

On the Stock Market's Reaction to Major Railroad Accidents

On the Stock Market's Reaction to Major Railroad Accidents

Capitalizing on Catastrophe: Short Selling Insurance Stocks Around Hurricanes Katrina and Rita

The Impact of Asbestos and Environmental Reserves Increases on Shareholder Wealth

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