Information risk and the cost of capital

Collection: Articles
Title: Information risk and the cost of capital / David L. Eckles, Martin Halek, Rongrong Zhang
Author: Eckles, David L.
Notes: Sumario: This article applies a unique accruals measure to empirically test whether accruals quality affects the cost of capital for propertyliability insurers. We utilize insurer loss reserve errors to accurately measure the quality of accruals. This measure, as well as conventional accruals measures, is used to investigate the extent to which accruals quality is priced into both debt and equity capital. We find that accruals quality is priced into debt capital; however, we find virtually no evidence that accruals quality is priced into equity capital. Our results should be of particular interest to insurers as it affects pricing ability. Specifically, insurers who provide primary debtholders (i.e., policyholders) less information risk are able to command higher prices. Furthermore, our results suggest that insurance is not a diversifiable asset.
Related records: En: The Journal of risk and insurance. - Nueva York : The American Risk and Insurance Association, 1964- = ISSN 0022-4367. - 01/12/2014 Volumen 81 Número 4 - diciembre 2014
Other categories: 7
Rights: In Copyright (InC):
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