Franchise Value, Competition and Insurer Risk Taking

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

“…Both studies confirm the importance of ownership structure for corporate governance and risk taking. Using a sample of publicly traded stock property–casualty insurers, Ren and Schmit () document that the risk‐constraining effect of franchise value is affected by the degree of competition (for a general overview of the corporate governance literature in the insurance industry, see Boubakri, ).…”

The Determinants of Bank Risk Taking: Evidence From Jordan

“…Franchise value can help reduce excessive risk taking because banks with high franchise value have much to lose if a risky business strategy leads to insolvency. (Demsetz et al, 1996), (Jonghe et al, 2008), and (Ren et al, 2006) used the franchise value as the value of the current and future profits that a bank is expected to earn as a going concern, they measured the franchise value by using the Tobin's Q ratio which is proxied by the ratio of a bank's market value to its book value. (Demsetz et al, 1996) argued that one way to calculate franchise value is to look at the difference between a firm's market value and its replacement cost.…”

“…This theory predicts negative effect of franchise value on firm risk-taking. (Ren et al, 2006) the economic worth of a firm includes the value of both tangible and intangible assets. They argued that the franchise value represents a firm's intangible assets, which is the value of the firm above and beyond the value of its tangible assets.…”

“…The researchers will use the "Tobin's Q" ratio as a measure for the franchise value because it is an internationally acceptable measurement and it the most common used measurement for franchise value, and this measurement has an available data for the period of the study. In this study as in (Ren et al, 2006) and (Konishi et al, 2004) studies, the researcher will use the "Tobin's Q" ratio without using the Goodwill because it is hard to measure it for the Jordanian banks in the study period, so the equation will be divided only by the book value of assets as shown below.…”

“…According to (Konishi et al, 2004) the frequency variable is measured by the average daily volume of shares divided by the total number of outstanding shares. (Konishi et al, 2004) (Demsetz et al, 1996) (Jonghe et al, 2008) ( Ren et al, 2006)…”