TITLE
"Dividend Signaling by Insurance Companies and Price Regulation:
A Reexamination," Journal
of Insurance Issues, Maosen Zhong. Fall 1999,
Vol. XXII, No. 2, pp. 164-176. Entire article in Acrobat format.
ABSTRACT
I reexmaine Akhigbe, Borde, and Madura's (1993) study of dividend signaling by insurers
and provide an alternative interpretation from a price-regulation perspective. Using a
more appropriate data classification system, I partition 161 insurance companies into
three categories: life, property-liability, and multi-line. All three types of insurers
experience significant abnormal returns during the dividend increase events. The
property-liability insurers' returns are less volatile during the event window period.
This implies that investors of property-liability insurers are more confident in the
content of dividend signals, perhaps because the price regulators bear part of investors'
monitoring costs. On the other hand, limited information due to price regulation urges
investors of property-liability insurers to respond faster than do investors of life
insurers. A cross-sectional analysis suggests that property-liability insurers experience
large stock price response to dividend signaling. Since price regulation limits
information regarding insurers' performance conveyed through insurance premiums, dividend
increases potentially convey more asymmetric information in property-liability insurers.
[Keywords: insurance, dividend signaling, price, regulation.]
|