Investor-Driven Corporate Finance: Evidence from Insurance Markets

Regulatory capital and asset risk transfer

“…In this section, we investigate potential alternative explanations of our results and perform several robustness checks. Several studies document that larger insurers are less likely to sell bonds (e.g., Chodorow‐Reich et al, 2021; Coppola, 2021; Kubitza, 2022). Accordingly, one potential concern is that ModCo‐users are larger than non‐ModCo insurers (see Table 1), and it is large insurers, rather than insurers using ModCo, that are less likely to sell downgraded bonds.…”

Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels

“…7 See also Kubitza (2021) and Greenwood and Vissing-Jorgensen (2018) who analyze how the portfolio choice of insurance companies affect firms and the yield curve, respectively. Cornaggia and Cornaggia, 2013;Iannotta et al, 2019;Baghai et al, 2020).…”

Life Insurance Convexity

“…Due to insurers' significant price impact in financial markets (e.g., Ellul et al, 2011;Kubitza, 2021), surrender-driven asset sales may significantly reduce asset prices, by up to 40 bps in 1 Introductory statement by Mario Draghi, hearing before the committee on economic and monetary affairs of the European Parliament, 26 November 2018.…”

“…Whereas the surrender options embedded in most life insurance contracts resemble withdrawal options of demand-deposit contracts, life insurers differ from other financial institutions in many aspects, such as their regulation and offering of long-term guarantees (Koijen and Yogo, 2021;Ellul et al, 2021). The significant size of life insurers and their pivotal role in fixedincome markets (Ellul et al, 2011;IMF, 2016;Kubitza, 2021;Koijen and Yogo, 2022) warrant a detailed understanding of their liquidity risk. However, while a growing literature studies how regulatory frictions shape insurers' investment behavior and funding structure (Becker and Ivashina, 2015;Koijen and Yogo, 2016;Sen, 2020;Becker et al, 2021), less is known about the role of surrender rates in life insurers' liquidity risk.…”

“…A growing literature empirically documents that insurers and, more generally, institutional investors significantly affect asset prices (e.g., Ellul et al, 2011Ellul et al, , 2015Greenwood and Vissing-Jorgensen, 2018;Koijen and Yogo, 2019;Girardi et al, 2021;Kubitza, 2021;Liu et al, 2021).…”