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Foreign Direct Investment and the Supply of Life Insurance in Emerging Countries

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  • James M. Carson
  • Pei-Han Chen
  • J. François Outreville

Abstract

This paper investigates the relationship between diversification relatedness and firm performance in the U.S. property‐liability insurance industry. While prior research has evaluated the effect of diversification on insurer performance, little evidence exists regarding the relation between diversification strategy and performance for diversified firms. Theory suggests that potential costs and benefits are associated with related and unrelated forms of diversification and that these can vary along the relatedness continuum. We test for the net effect of diversification strategy and find that relatedness negatively impacts accounting performance. This relatedness penalty is robust to corrections for potential endogeneity bias, it exists for newly diversifying firms, and it has a differential effect on stock and mutual insurers. Finally, we find that related diversification is largely responsible for the diversification penalty found in prior research while unrelated diversification has no relation to accounting performance.

Suggested Citation

  • James M. Carson & Pei-Han Chen & J. François Outreville, 2021. "Foreign Direct Investment and the Supply of Life Insurance in Emerging Countries," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 44(1), pages 38-64.
    • Handle: RePEc:wri:journl:v:44:y:2021:i:1:p:38-64
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    Cited by:

    1. Ingrid-Mihaela Dragotă & Cosmin Octavian Cepoi & Lavinia Ştefan, 2023. "Threshold effect for the life insurance industry: evidence from OECD countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 799-820, October.
    2. Bojan Srbinoski & Klime Poposki & W. Jean Kwon & Ksenija Dencic-Mihajlov, 2024. "Greenfield foreign direct investments and insurance market diversification: a cross-country analysis," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 49(3), pages 636-661, July.
    3. Scalamonti, Francesco, 2024. "The foreign investments-growth nexus in underdeveloped countries: the state-of-art of research analysing a selected and recent empirical literature (2020-2022)," Technological Forecasting and Social Change, Elsevier, vol. 198(C).

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