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Corporate transparency and reserve management: Evidence from US property-liability insurance companies

Author

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  • Han, Sangyong
  • Lai, Gene C.
  • Ho, Chia-Ling
Abstract
Using a sample of US publicly traded property-liability insurers, we examine the effect of corporate transparency on earnings management. We find that a higher level of corporate transparency is associated with more conservative loss-reserves estimation. Our evidence shows that the positive effect of corporate transparency on insurers’ reserves-estimate conservatism is more pronounced for insurers that are smaller and have more diversified lines of business and that certain board characteristics—such as being smaller, meeting more frequently, and having a higher percentage of independent directors—can restrain the inadequate reserves management of less transparent US publicly traded property-liability insurers. We also provide evidence that additional regulatory mandates to seek greater transparency in the Sarbanes-Oxley Act may be redundant, given the existing regulations in the property-liability insurance industry. Finally, we find insurers’ conservative reserve estimates were more pronounced during the 2008–2009 financial crisis.

Suggested Citation

  • Han, Sangyong & Lai, Gene C. & Ho, Chia-Ling, 2018. "Corporate transparency and reserve management: Evidence from US property-liability insurance companies," Journal of Banking & Finance, Elsevier, vol. 96(C), pages 379-392.
  • Handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:379-392
    DOI: 10.1016/j.jbankfin.2018.07.017
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    More about this item

    Keywords

    Corporate transparency; Financial crisis; Reserve management; SOX;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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