• The Impacts of Corporate Governance Structures on Risk Taking by Insurance Companies in Taiwan

Abstract

This paper investigates the impacts of corporate governance structures on risk taking behavior in the insurance industry. The corporate governance structure of the insurance industry in Taiwan, which holds board members fully responsible for cases of bankruptcy, offers an interesting environment in which to explore its unique regulatory impact on insurers’ risk taking behavior. The evidence shows that, even under stricter regulatory rules, corporate governance still plays an important role in influencing risk taking by both property-liability and life insurers in Taiwan. Specifically, deviations of voting rights from cash-flow rights and ownership concentration have positive impacts on risk taking, whereas cash-flow rights, board size, board independence, and CEO duality have negative impacts on insurers’ risk taking. The relationship between investment risk and insider ownership is inversely U-shaped.

Keywords: Insurance Industry, Corporate Governance, Risk Taking