Restructuring of the Dutch Nonlife Insurance Industry: Consolidation,Organizational Form,and Focus

Since the deregulation of the European insurance market in 1994, Dutch nonlife insurance firms have sized up and increased their focus. Concurrently, the stock organizational form has become increasingly dominant. This article investigates these 1995–2005 trends from a cost‐efficiency perspective. We observe substantial economies of scale that are even larger for smaller firms. In line with the efficient structure hypothesis, both stocks and mutuals are found to have comparative cost advantages. Supporting the strategic focus hypothesis, we find that more specialized insurers have lower costs. Thick frontier efficiency estimates point to large cost X‐inefficiencies that have moderately decreased over time.     

Stock repurchases: How firms choose between a self tender offer and an open-market program

In practice, open-market stock repurchase programs outnumber self tender offers by approximately 10–1. This evidence is puzzling given that tender offers are more efficient in disbursing free cash and in signaling undervaluation – the two main motivations suggested in the literature for repurchasing shares. We provide a theoretical model to explore this puzzle. In the model, tender offers disburse free cash quickly but induce information asymmetry and hence require a price premium. Open-market programs disburse free cash slowly, and hence do not require a price premium, but because they are slow, result in partial free cash waste. The model predicts that the likelihood that a tender offer will be chosen over an open-market program increases with the agency costs of free cash and decreases with uncertainty (risk), information asymmetry, ownership concentration, and liquidity. These predictions are generally consistent with the empirical evidence.     

Canadian Perspectives on the Challenges of Consumer Bankruptcies

Consumer bankruptcies in Canada have become a major legal, economic and social phenomenon. The number of consumer bankruptcies almost tripled between 1985 and 1995 and exceeded 75,000 in 1996. The author examines the causes of the rapidly escalating number of bankruptcies and shows that there is a strong correlation between the number of consumer bankruptcies and the equally rapid growth in the volume of consumer credit. The paper rejects the argument of credit grantors and federal bankruptcy officials that going bankrupt and obtaining a discharge from one's debts has become too easy and that a high percentage of consumer bankrupts could have made a consumer proposal involving a substantial repayment of their debts.The paper also joins issue with the provisions in Bill C-5, a bill amending the federal Bankruptcy and Insolvency Act currently before the Canadian Parliament, and criticizes the proposed amendments involving consumer bankruptcies on the ground that they ignore or misinterpret the available data, much of them generated by the Canadian Government itself.     

THE STATISTICS OF LONG-HORIZON REGRESSIONS REVISITED1

This paper compares commonly used approaches for estimating the relation between long-horizon returns and a predetermined variable X₁, such as dividend yields. Specifically, we look at regression of (i) nonoverlapping multiperiod returns on X_t (ii) overlapping multiperiod returns on X_t, (iii) single-period returns on multiperiod X_t, and (iv) single-period returns on X_t and its implied long-horizon regression coefficient. We provide analytical formulae which quantify the efficiency of the estimators used in the various approaches. Using the formulae, as well as Monte Carlo simulations, we demonstrate that the relative efficiency of the estimators used in the various approaches differs remarkably, depending on the dynamic structure of the regressor. of special interest for financial economists, when the regressors are highly autocorrelated, we find that the regressions (ii) (iii), and (iv) provide only marginal efficiency gains above and beyond the nonoverlapping long-horizon regression.