Determinants of Corporate Diversification: Evidence From the Property–Liability Insurance Industry |
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| Authors: | Thomas R Berry‐Stölzle Andre P Liebenberg Joseph S Ruhland David W Sommer |
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| Institution: | 1. Thomas R. Berry‐St?lzle is with the Terry College of Business, University of Georgia;2. Andre P. Liebenberg is the Robertson Chair of Insurance in the School of Business Administration, University of Mississippi. He can be contacted via email: aliebenberg@bus.olemiss.edu;3. Joseph S. Ruhland is with the College of Business Administration, Georgia Southern University |
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| Abstract: | This article analyzes variations in line‐of‐business diversification status and extent among property–liability insurers. Our results show that the extent of diversification is not driven by risk pooling considerations; insurers operating in more volatile business lines do not diversify more. Diversification can rather be explained by the benefits of internal capital markets and barriers to business growth like market size and concentration. In our analysis, we distinguish between related and unrelated diversification. Using a measure of unrelated line‐of‐business diversification we find the first support for the diversification prediction of the managerial discretion hypothesis that mutual insurers should be less diversified than stock insurers. While mutual insurers tend to exhibit higher levels of total diversification, they engage in significantly less unrelated diversification than do stock insurers. |
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