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Article: Debt capacity, cost of debt, and corporate insurance

TitleDebt capacity, cost of debt, and corporate insurance
Authors
Issue Date2008
PublisherCambridge University Press. The Journal's web site is located at http://journals.cambridge.org/action/displayJournal?jid=jfq
Citation
Journal Of Financial And Quantitative Analysis, 2008, v. 43 n. 2, p. 433-466 How to Cite?
AbstractUsing a unique insurance dataset for a sample of Chinese publicly listed companies for the period 1997 through 2003, this study tests the simultaneous linkages between debt capacity, cost of debt, and corporate property insurance. Our results suggest that, on the one hand, a higher cost of debt appears to motivate the use of more property insurance, but high leverage alone does not lead to the purchase of more property insurance. The latter finding might reflect the unique institutional setting of China, for example, where there is a low chance of legally enforced company liquidation. Also, there is evidence that leverage can interact with tangible assets intensity and exert a positive conjoint effect on the corporate purchase of property insurance. On the other hand, we find evidence that supports that property insurance helps expand insuring firms' debt capacity and helps lower their borrowing costs. However, the moderate evidence on the cost reduction effect suggests that lowering the borrowing cost is likely to be a concern secondary to facilitating corporate borrowing and thereby expanding debt capacity in corporate property insurance decisions in China. Overall, we conclude that debt capacity, cost of debt, and corporate insurance appear to be simultaneously related.
Persistent Identifierhttp://hdl.handle.net/10722/188456
ISSN
2015 Impact Factor: 1.628
2015 SCImago Journal Rankings: 2.998
SSRN
References

 

DC FieldValueLanguage
dc.contributor.authorZou, Hen_US
dc.contributor.authorAdams, MBen_US
dc.date.accessioned2013-09-03T04:07:38Z-
dc.date.available2013-09-03T04:07:38Z-
dc.date.issued2008en_US
dc.identifier.citationJournal Of Financial And Quantitative Analysis, 2008, v. 43 n. 2, p. 433-466en_US
dc.identifier.issn0022-1090en_US
dc.identifier.urihttp://hdl.handle.net/10722/188456-
dc.description.abstractUsing a unique insurance dataset for a sample of Chinese publicly listed companies for the period 1997 through 2003, this study tests the simultaneous linkages between debt capacity, cost of debt, and corporate property insurance. Our results suggest that, on the one hand, a higher cost of debt appears to motivate the use of more property insurance, but high leverage alone does not lead to the purchase of more property insurance. The latter finding might reflect the unique institutional setting of China, for example, where there is a low chance of legally enforced company liquidation. Also, there is evidence that leverage can interact with tangible assets intensity and exert a positive conjoint effect on the corporate purchase of property insurance. On the other hand, we find evidence that supports that property insurance helps expand insuring firms' debt capacity and helps lower their borrowing costs. However, the moderate evidence on the cost reduction effect suggests that lowering the borrowing cost is likely to be a concern secondary to facilitating corporate borrowing and thereby expanding debt capacity in corporate property insurance decisions in China. Overall, we conclude that debt capacity, cost of debt, and corporate insurance appear to be simultaneously related.en_US
dc.languageengen_US
dc.publisherCambridge University Press. The Journal's web site is located at http://journals.cambridge.org/action/displayJournal?jid=jfqen_US
dc.relation.ispartofJournal of Financial and Quantitative Analysisen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleDebt capacity, cost of debt, and corporate insuranceen_US
dc.typeArticleen_US
dc.identifier.emailZou, H: hongzou@hku.hken_US
dc.identifier.authorityZou, H=rp01800en_US
dc.description.naturepublished_or_final_versionen_US
dc.identifier.doi10.1017/S0022109000003586-
dc.identifier.scopuseid_2-s2.0-46849086373en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-46849086373&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume43en_US
dc.identifier.issue2en_US
dc.identifier.spage433en_US
dc.identifier.epage466en_US
dc.publisher.placeUnited Kingdomen_US
dc.identifier.ssrn1652543-
dc.identifier.scopusauthoridZou, H=12769328900en_US
dc.identifier.scopusauthoridAdams, MB=7403905632en_US

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