Date of Award
Fall 2009
Degree Type
Dissertation
Degree Name
Doctor of Philosophy (PhD)
Graduate Group
Applied Economics
First Advisor
Greg Nini
Second Advisor
Scott Harrington
Third Advisor
John Core
Abstract
This paper provides evidence that insurance executives respond to their compensation incentives by adjusting observable risk-management policy variables – the reinsurance purchase decision, type of business conducted, and firm leverage. Executive incentives are modeled by the executive sensitivity of wealth to stock price (Delta) and stock volatility (Vega). Firms respond to increased executive incentives to bear risk by purchasing less reinsurance, but also conducting less business in long-tailed lines – a change which rewards the executive through increased market volatility. The cost of altering executive incentives to effect firm policy is much less than a similar change in firm structural variables.
Recommended Citation
Skog, Jeremy O., "Executive Incentives and Corporate Decisions: The Risk Management Channel" (2009). Publicly Accessible Penn Dissertations. 68.
https://repository.upenn.edu/edissertations/68
Included in
Finance Commons, Finance and Financial Management Commons, Insurance Commons, Labor Economics Commons