Analyst coverage, executive compensation and corporate risk‐taking: Evidence from property–casualty insurance firms

Abstract

Using an exogenous drop in analyst coverage introduced by broker closures and mergers, we test for the causal impact of analyst coverage on corporate risk‐taking, in an opaque industry. We document an increase in risk using several book‐based and market‐based risk measures, including tail and default risk measures. Results are driven by firms with stronger managerial risk‐taking compensation incentives. The increase in risk is stronger in more opaque firms, and firms with weaker policyholder monitoring. Firm risk increases through at least one risk‐taking action, such as investing firm assets in higher‐risk bonds. Our study highlights the importance of stock analysts in affecting corporate risk‐taking, especially in the presence of stronger managerial, compensation risk‐taking incentives.

Integrating Disaster Risks: A Comprehensive Catastrophe Risk Assessment Model and Its Empirical Validation

“…According to previous studies, disaster-bearing factors are related to the probability of risk occurrence(𝛽 1 ), risk loss rate(𝛽 2 ), and risk exposure(𝛽 3 ). In the above dataset, we can obtain a combination of the three parameters of the four disaster-bearing factors [9] .…”