IDEAS home Printed from https://ideas.repec.org/a/spr/snbeco/v2y2022i7d10.1007_s43546-022-00254-x.html
   My bibliography  Save this article

Risk behaviour and insurance efficiency: the role of ownership and regulations from an emerging economies

Author

Listed:
  • Daniel Ofori-Sasu

    (University of Ghana Business School
    Central University)

  • John Kuwornu

    (Asian Institute of Technology)

  • Gloria Clarissa Dzeha

    (Central University)

  • Baah Aye Kusi

    (University of Ghana Business School)

Abstract

The paper examines the effect of risk-taking behaviours, ownership and regulations on insurance efficiency. The study uses the robust 2-stage Simar and Wilson simultaneous truncated regression for 40 Ghanaian insurance firms over 2008–2017 period. First, it provides evidence that insurance risk-taking behaviours reduce insurance efficiency. It found that regulations complement insurance ownership in explaining insurers’ efficiency. Finally, it shows that insurance ownership and regulations are important in reducing the negative impact of risk-taking behaviours on insurance efficiency in the long run. The policy implication is that shareholders should align their interest with managers by designing effective complementarity framework between ownership structures and risk-taking behaviours to yield an optimal insurance efficiency. Regulators should provide regulatory frameworks that align with the interest of inside ownership of insurers to provide effective risk management that generate optimal insurance efficiency.

Suggested Citation

  • Daniel Ofori-Sasu & John Kuwornu & Gloria Clarissa Dzeha & Baah Aye Kusi, 2022. "Risk behaviour and insurance efficiency: the role of ownership and regulations from an emerging economies," SN Business & Economics, Springer, vol. 2(7), pages 1-30, July.
    • Handle: RePEc:spr:snbeco:v:2:y:2022:i:7:d:10.1007_s43546-022-00254-x
    DOI: 10.1007/s43546-022-00254-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s43546-022-00254-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s43546-022-00254-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Leopold Simar & Paul Wilson, 2000. "A general methodology for bootstrapping in non-parametric frontier models," Journal of Applied Statistics, Taylor & Francis Journals, vol. 27(6), pages 779-802.
    2. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    3. Tijani Amara & Mohamed Mabrouki, 2019. "Did The Tunisian Commercial Banks Respect The Prudential Rules?," Journal of Smart Economic Growth, , vol. 4(2), pages 71-96, September.
    4. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-685, May.
    5. Tadesse, Solomon, 2006. "The economic value of regulated disclosure: Evidence from the banking sector," Journal of Accounting and Public Policy, Elsevier, vol. 25(1), pages 32-70.
    6. Hamid Mehran & Lindsay Mollineaux, 2012. "Corporate Governance of Financial Institutions," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 215-232, October.
    7. Wassim RAJHI & Slim A. HASSAIRI, 2013. "Islamic Banks And Financial Stability: A Comparative Empirical Analysis Between Mena And Southeast Asian Countries," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 37, pages 149-177.
    8. Abdul Latif Alhassan & Nicholas Biekpe, 2015. "Efficiency, Productivity and Returns to Scale Economies in the Non-Life Insurance Market in South Africa," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 40(3), pages 493-515, July.
    9. Kao, Chiang & Hwang, Shiuh-Nan, 2008. "Efficiency decomposition in two-stage data envelopment analysis: An application to non-life insurance companies in Taiwan," European Journal of Operational Research, Elsevier, vol. 185(1), pages 418-429, February.
    10. Ruoyu Cai & Mao Zhang, 2017. "How Does Credit Risk Influence Liquidity Risk? Evidence from Ukrainian Banks," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 241, pages 21-32.
    11. Danisman, Gamze Ozturk & Demirel, Pelin, 2019. "Bank risk-taking in developed countries: The influence of market power and bank regulations," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 59(C), pages 202-217.
    12. Léopold Simar & Paul Wilson, 2011. "Two-stage DEA: caveat emptor," Journal of Productivity Analysis, Springer, vol. 36(2), pages 205-218, October.
    13. Joseph Oscar Akotey & Frank G. Sackey & Lordina Amoah & Richard Frimpong Manso, 2013. "The financial performance of life insurance companies in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 14(3), pages 286-302, May.
    14. Gaganis, Chrysovalantis & Hasan, Iftekhar & Pasiouras, Fotios, 2016. "Regulations, institutions and income smoothing by managing technical reserves: International evidence from the insurance industry," Omega, Elsevier, vol. 59(PA), pages 113-129.
    15. Kaoru Hosono & Hiroko Iwaki & Kotaro Tsuru, 2008. "Bank Regulation and Market Discipline around the World," Gakushuin Economic Papers, Gakushuin University, Faculty of Economics, vol. 45(1), pages 27-64.
    16. L. Paige Fields & Manu Gupta & Puneet Prakash, 2012. "Risk Taking and Performance of Public Insurers: An International Comparison," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(4), pages 931-962, December.
    17. Lee, Chien-Chiang & Lin, Chun-Wei, 2016. "Globalization, political institutions, financial liberalization, and performance of the insurance industry," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 244-266.
    18. Léopold Simar & Paul W. Wilson, 2020. "Hypothesis testing in nonparametric models of production using multiple sample splits," Journal of Productivity Analysis, Springer, vol. 53(3), pages 287-303, June.
    19. Shehzad, Choudhry Tanveer & de Haan, Jakob & Scholtens, Bert, 2010. "The impact of bank ownership concentration on impaired loans and capital adequacy," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 399-408, February.
    20. Eling, Martin & Jia, Ruo, 2019. "Efficiency and profitability in the global insurance industry," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    21. Baah Aye Kusi & Abdul Latif Alhassan & Daniel Ofori-Sasu & Rockson Sai, 2019. "Insurance regulations, risk and performance in Ghana," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 28(1), pages 74-96, August.
    22. Pasiouras, Fotios & Gaganis, Chrysovalantis, 2013. "Regulations and soundness of insurance firms: International evidence," Journal of Business Research, Elsevier, vol. 66(5), pages 632-642.
    23. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    24. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    25. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    26. Wu, Ji & Chen, Limei & Chen, Minghua & Jeon, Bang Nam, 2020. "Diversification, efficiency and risk of banks: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 45(C).
    27. Atkinson, Scott E & Cornwell, Christopher, 1994. "Parametric Estimation of Technical and Allocative Inefficiency with Panel Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 231-243, February.
    28. Ana-Maria Burca & Ghiorghe Batrinca, 2014. "The Determinants of Financial Performance in the Romanian Insurance Market," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(1), pages 299-308, January.
    29. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
    30. Renée Adams & Daniel Ferreira, 2008. "One Share-One Vote: The Empirical Evidence," Review of Finance, European Finance Association, vol. 12(1), pages 51-91.
    31. Vivian Jeng & Gene C. Lai, 2005. "Ownership Structure, Agency Costs, Specialization, and Efficiency: Analysis of Keiretsu and Independent Insurers in the Japanese Nonlife Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(1), pages 105-158, March.
    32. Abdul Latif Alhassan & Nicholas Biekpe, 2017. "Liberalization Outcomes and Competitive Behaviour in an Emerging Insurance Market," African Development Review, African Development Bank, vol. 29(2), pages 122-138, June.
    33. Melinda Muth & Lex Donaldson, 1998. "Stewardship Theory and Board Structure: a contingency approach," Corporate Governance: An International Review, Wiley Blackwell, vol. 6(1), pages 5-28, January.
    34. repec:eme:jrfpps:v:14:y:2013:i:2:p:286-302 is not listed on IDEAS
    35. William Greene & Dan Segal, 2004. "Profitability and Efficiency in the U.S. Life Insurance Industry," Journal of Productivity Analysis, Springer, vol. 21(3), pages 229-247, May.
    36. Gaganis, Chrysovalantis & Liu, Liuling & Pasiouras, Fotios, 2015. "Regulations, profitability, and risk-adjusted returns of European insurers: An empirical investigation," Journal of Financial Stability, Elsevier, vol. 18(C), pages 55-77.
    37. Becher, David A. & Frye, Melissa B., 2011. "Does regulation substitute or complement governance?," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 736-751, March.
    38. Martin Eling & Michael Luhnen, 2010. "Frontier Efficiency Methodologies to Measure Performance in the Insurance Industry: Overview, Systematization, and Recent Developments," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 35(2), pages 217-265, April.
    39. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    40. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
    41. Baker, Malcolm & Gompers, Paul A, 2003. "The Determinants of Board Structure at the Initial Public Offering," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 569-598, October.
    42. Li‐Ying Huang & Gene C. Lai & Michael McNamara & Jennifer Wang, 2011. "Corporate Governance and Efficiency: Evidence From U.S. Property–Liability Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(3), pages 519-550, September.
    43. Pesaran, M. Hashem, 2015. "Time Series and Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780198759980.
    44. Eling, Martin & Luhnen, Michael, 2010. "Efficiency in the international insurance industry: A cross-country comparison," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1497-1509, July.
    45. Compton, Ryan A. & Giedeman, Daniel C. & Hoover, Gary A., 2011. "Panel evidence on economic freedom and growth in the United States," European Journal of Political Economy, Elsevier, vol. 27(3), pages 423-435, September.
    46. Imbierowicz, Björn & Rauch, Christian, 2014. "The relationship between liquidity risk and credit risk in banks," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 242-256.
    47. Brambor, Thomas & Clark, William Roberts & Golder, Matt, 2006. "Understanding Interaction Models: Improving Empirical Analyses," Political Analysis, Cambridge University Press, vol. 14(1), pages 63-82, January.
    48. Houssem Rachdi & Faten Ben Bouheni, 2016. "Revisiting the effect of regulation, supervision and risk on banking performance," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 24(1), pages 24-40, February.
    49. DeYoung, Robert & Jang, Karen Y., 2016. "Do banks actively manage their liquidity?," Journal of Banking & Finance, Elsevier, vol. 66(C), pages 143-161.
    50. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    51. Michael Adusei, 2015. "The impact of bank size and funding risk on bank stability," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1111489-111, December.
    52. Lin, Zhibing & Cai, Chen & Xu, Baoguang, 2010. "Supply chain coordination with insurance contract," European Journal of Operational Research, Elsevier, vol. 205(2), pages 339-345, September.
    53. Booth, James R. & Cornett, Marcia Millon & Tehranian, Hassan, 2002. "Boards of directors, ownership, and regulation," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 1973-1996, October.
    54. Bouyon, Sylvain, 2014. "A Review of Policy Options for Monitoring Household Saving," ECRI Papers 9754, Centre for European Policy Studies.
    55. Ameni Ghenimi & Hasna Chaibi & Mohamed Ali Brahim Omri, 2017. "The effects of liquidity risk and credit risk on bank stability: Evidence from the MENA region," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(4), pages 238-248, December.
    56. Abdul Latif Alhassan & Nicholas Biekpe, 2018. "Competition and Risk-Taking Behaviour in the Non-Life Insurance Market in South Africa," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(3), pages 492-519, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaffash, Sepideh & Azizi, Roza & Huang, Ying & Zhu, Joe, 2020. "A survey of data envelopment analysis applications in the insurance industry 1993–2018," European Journal of Operational Research, Elsevier, vol. 284(3), pages 801-813.
    2. Biener, Christian & Eling, Martin & Wirfs, Jan Hendrik, 2016. "The determinants of efficiency and productivity in the Swiss insurance industry," European Journal of Operational Research, Elsevier, vol. 248(2), pages 703-714.
    3. Eling, Martin & Jia, Ruo, 2018. "Business failure, efficiency, and volatility: Evidence from the European insurance industry," International Review of Financial Analysis, Elsevier, vol. 59(C), pages 58-76.
    4. Eling, Martin & Jia, Ruo, 2019. "Efficiency and profitability in the global insurance industry," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    5. Bojan Srbinoski & Klime Poposki & Gorazd Čibej, 2021. "An empirical investigation of determinants of life insurers’ performance: Evidence from selected countries in Central, Eastern, and Southeastern Europe (CESEE)," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(3), pages 293-310, September.
    6. Djebali, Nesrine & Zaghdoudi, Khemais, 2020. "Threshold effects of liquidity risk and credit risk on bank stability in the MENA region," Journal of Policy Modeling, Elsevier, vol. 42(5), pages 1049-1063.
    7. Alhassan, Abdul Latif, 2023. "Financial Health of Medical Schemes in South Africa," Finance Research Letters, Elsevier, vol. 51(C).
    8. Biener, Christian & Eling, Martin & Jia, Ruo, 2017. "The structure of the global reinsurance market: An analysis of efficiency, scale, and scope," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 213-229.
    9. Liu, John S. & Lu, Louis Y.Y. & Lu, Wen-Min, 2016. "Research fronts in data envelopment analysis," Omega, Elsevier, vol. 58(C), pages 33-45.
    10. Biener, Christian & Eling, Martin & Jia, Ruo, 2016. "The Roles of Industry Idiosyncrasy, Cost Efficiency, and Risk in Internationalization: Evidence from the Insurance Industry," Working Papers on Finance 1602, University of St. Gallen, School of Finance.
    11. Biener, Christian & Eling, Martin, 2012. "Organization and efficiency in the international insurance industry: A cross-frontier analysis," European Journal of Operational Research, Elsevier, vol. 221(2), pages 454-468.
    12. María Rubio-Misas, 2024. "Supervisory power and insurer financial stability: the role of institutional quality," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 49(4), pages 804-830, October.
    13. Schaper, Philipp, 2017. "Under pressure: how the business environment affects productivity and efficiency of European life insurance companiesAuthor-Name: Eling, Martin," European Journal of Operational Research, Elsevier, vol. 258(3), pages 1082-1094.
    14. Ali Shaddady, 2022. "Business environment, political risk, governance, Shariah compliance and efficiency in insurance companies in the MENA region," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 861-904, October.
    15. Natalya Zelenyuk & Valentin Zelenyuk, 2015. "Productivity Drivers of Efficiency in Banking: Importance of Model Specifications," CEPA Working Papers Series WP082015, School of Economics, University of Queensland, Australia.
    16. Huang, Tai-Hsin & Lin, Chung-I & Wu, Ruei-Cian, 2019. "Assessing the marketing and investment efficiency of Taiwan’s life insurance firms under network structures," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 132-147.
    17. Huang, Wei & Eling, Martin, 2013. "An efficiency comparison of the non-life insurance industry in the BRIC countries," European Journal of Operational Research, Elsevier, vol. 226(3), pages 577-591.
    18. Daniel Attah-Kyei & Charles Andoh & Saint Kuttu, 2023. "Risk, technical efficiency and capital requirements of Ghanaian insurers," Risk Management, Palgrave Macmillan, vol. 25(4), pages 1-27, December.
    19. Yang, Guo-liang & Fukuyama, Hirofumi & Chen, Kun, 2019. "Investigating the regional sustainable performance of the Chinese real estate industry: A slack-based DEA approach," Omega, Elsevier, vol. 84(C), pages 141-159.
    20. Kwaku Ohene-Asare & Jones Kofi Anyimadu Asare & Charles Turkson, 2019. "Dynamic cost productivity and economies of scale of Ghanaian insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(1), pages 148-177, January.

    More about this item

    Keywords

    Insurance efficiency; Regulations; Risk-taking behaviours; Insurance ownership;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:snbeco:v:2:y:2022:i:7:d:10.1007_s43546-022-00254-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.