Essays on life insurer demutualization and diversifying mergers and acquisitions.

摘要

One outcome of ever increasing competition and consolidation in the financial services industries has been the declining significance of the mutual organizational form in the U.S. life insurance industry. The process of converting from a mutual to a stock company gives rise to a variety of issues. The first three essays in this dissertation focus on the growing movement toward demutualization in the U.S. life insurance industry where essay one discusses industrial organization background. In essay two, I improve on the existing literature regarding the determinants of life insurer demutualizations by investigating an expanded data set and utilizing more robust econometric techniques to allow for different forms of demutualization. I also model the demutualization process as a two step process to account for the timing of demutualization, time-varying covariates, and censoring. These models yield results that strongly support the access to capital hypothesis. In essay three, I examine changes in risk management and investment strategies of demutualizing life insurers following conversion. The empirical tests reveal that demutualizing life insurers increase total risk after conversion consistent with their increased abilities and incentives for risk taking. They achieve this increase by hedging interest rate risk and increasing their core-business risks as proxied by investments in various illiquid asset classes. The final essay is on diversifying mergers and acquisitions. Conventional wisdom suggests diversification reduces risk. However, the change in the riskiness of the firm after diversifying acquisitions has not been directly tested in the literature. Using a sample of diversifying M&As, I find that total firm risk does not decrease significantly after these transactions. I then show that while total firm risk does not change, core-business risk increases significantly after the diversifying M&A transactions. I also find that capital expenditures in the acquirers' core business segments increase significantly more after diversifying transactions relative to that of nondiversifying transactions. Overall, the evidence in this essay adds to the risk management literature that says hedging is a means of allocating risk rather than reducing risk and offers an alternative explanation for why firms diversify.