INSURANCE MANAGERS' STATUTORY REPORTING AND TAX OBJECTIVES: AN ANALYSIS OF THE ENDOGENEITY OF POLICY CHOICES.

摘要

The purpose of this study is to determine the relative importance of three property-casualty insurance manager objectives: surplus maintenance, tax minimization, and earnings smoothing. This study focuses on the property-casualty insurance industry primarily because of the availability of insurers' taxes incurred data and because of the insurance industry's clearly defined set of discretionary accounting, investment, and financing policy choices. This setting allows the modelling of a nearly comprehensive set of insurance manager statutory reporting objectives and discretionary choices. The discretionary choices examined include: IBNR reserves, reinsurance, the timing of capital gains on debt securities and on equity securities, net stock issuances and stockholder dividends, and policyholder dividends. The study further responds to Watts and Zimmerman's (1990) call for research into the endogeneity of managers choices by using a system of simultaneous equations to investigate whether insurance managers' discretionary choices are jointly determined.; The empirical results show support for all three insurance managers' reporting objectives. These results, however, show stronger evidence for surplus maintenance and tax minimization than earnings smoothing even though managers use discretion over reserves to achieve all three objectives. Hausman specification testing also yields evidence that insurance managers use their choices jointly to achieve their objectives. These findings are further supported by statistically significant relationships among discretionary choice variables.