The Determinants of the Use of Derivatives in the Japanese Insurance Companies

Abstract

ABSTRACT:The purpose of this study are to investigate the patterns of the use of derivatives by Japanese insurance companies, and to examine which firms-specific factors determine the decision of Japanese insurance companies to use derivatives. Using a sample of Japanese life insurance and non life insurance companies during the period of 2001-2008, we find that the participation rate for the use of derivatives by insurance companies in Japan is 72.4%, much higher than those found in the US, the UK or Australia. Using probit regression models, we examine the determinants of the use of derivatives, and we find that the decision to use derivatives by insurance companies is positively associated with firm size, leverage, and proportion of asset invested in stock, but negatively related with asset liability mismatch. We also find that the decision of Japanese insurance companies to extend their markets to operate globally increase the need to use derivatives.

An Empirical Analysis of the Correlation Between Derivatives Usage and Firm Specific Factors in Zimbabwe

“…The study also used regression analysis and the regression results confirmed the previous findings that derivatives usage is positively associated with firms' growth options, liquidity, foreign purchase and size. Lantara et al, (2013) provided evidence that the decision to use derivatives by Japanese insurance companies is positively related to leverage, firm size, proportion of assets invested in stocks and bonds and organizational form. It was also refuted that the decision to use derivatives was negatively correlated with reinsurance dependency.…”