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- Title
Hedging Affecting Firm Value via Financing and Investment: Evidence from Property Insurance Use.
- Authors
Hong Zou
- Abstract
I provide evidence about the value effects of alternative risk management by examining corporate purchase of property insurance, a commonly used pure hedge of asset-loss risks. Using an insurance data set from China, I find that there is an inverted U-shape effect of the extent of property insurance use on firm value measured by several versions of Tobin's Q. Therefore, the use of property insurance, to a certain degree, has a positive effect on firm value; however, over insurance appears detrimental to firm value. Given that the inflection points occur at relatively high levels of the observed insurance spending, insurance use appears beneficial to the majority of my sample firms. The estimated average hedging premium is about 1.5%. I demonstrate that an avenue for insurance to create value in China is that it helps firms secure valuable new debt financing and enhance investment.
- Subjects
HEDGING (Finance); INVESTMENTS; PROPERTY insurance; PROPERTY damage; CORPORATE debt
- Publication
Financial Management (Wiley-Blackwell), 2010, Vol 39, Issue 3, p965
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2010.01101.x