Affiliation:
1. College of Business Illinois State University Normal Illinois USA
2. Belk College of Business University of North Carolina at Charlotte Charlotte North Carolina USA
3. Insurance and Pension Division Korea Institute of Finance Seoul Korea
4. Department of Risk Management and Insurance Tamkang University New Taipei City Taiwan
Abstract
AbstractWe investigate the relationship between CEOs' past distress experience and risk‐taking in US property–liability insurance companies. Our evidence shows that CEOs' past distress experience is negatively associated with insurers' risk‐taking behavior, suggesting that CEOs with distress experiences tend to take lower levels of risk in making financial decisions for their firms. The results are robust to using alternative measures of risk‐taking, including value at risk, expected shortfall, volatility of stock return, idiosyncratic volatility, systematic volatility, underwriting risk, and investment risk. Additionally, our results pass a placebo test, and we mitigate endogeneity concerns with the propensity score matching method.