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Monday, August 2 • 2:15pm - 3:45pm
2E2 Captive Insurance, Income Stability, and Firm Performance: Evidence from S&P Europe 350 Companies

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Mu-Sheng Chang, California State University, Northridge; Jiun-Lin Chen, Valparaiso University; Harold Weston, Georgia State University

We examine the use of captive insurance among S&P Europe 350 companies, evaluating the effects of establishing a captive insurance subsidiary on income stability and profitability. The efficiency of risk management via captives implies that they help firms improve cash flow. The European Union (EU) differs from the United States (U.S.) because the former tends to regulate captives in a more uniform, enhanced regulatory environment. With captives present in thirty-five percent of all firm-years 2000 through 2017, our analysis provides evidence that firms with captives formed during this sample period deliver better financial outcomes as measured by ROA. Additional results show that captives do not contribute to stabilized income. This study also verifies that S&P Europe 350 firms with captives are not characterized by lower levels of cash holdings, intangible assets, and capital expenditures—three firm attributes observed in the existent studies on captives in the U.S. Overall, our study suggests a positive relationship between captive use and ROA for firms with captives formed in the 2000s, pointing out different characteristics between firms with captives created before and after 2000 as well as between S&P Europe 350 and S&P 500 companies with captives.

Discussant
avatar for Kylie Braegelmann

Kylie Braegelmann

Institute for Health Care & Public Management, University of Hohenheim

Presenters
avatar for Mu-Sheng Chang

Mu-Sheng Chang

California State University- Northridge



Monday August 2, 2021 2:15pm - 3:45pm EDT

Attendees (8)