The eect of captive insurer formation on stock returns: An empirical test from the UK
نویسندگان
چکیده
This paper examines the stock market impact of captive insurance subsidiary formation on parent companies in the United Kingdom (UK) corporate sector. We report that the formation of an insurance captive has no eect on the ®nancial, systematic and unsystematic risks of the parent company, irrespective of the parent's market capitalisation. In addition, there is weak evidence that the market has a negative view of the captive insurance decision. Finally, our results indicate that ®nancial risk, agency costs of free cash ̄ow, asymmetric information and market power have no eect on the stock market's reaction to the captive formation decision. Ó 2000 Elsevier Science B.V. All rights reserved. JEL classi®cation: G14; G22
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