Greg Niehaus

Insider Trading, Equity Issues, and CEO Turnover in Firms Subject to Securities Class Action

This study finds that the managers of firms that have been the target of class action lawsuits alleging securities fraud did not, on average, have an unusual incentive to conceal negative information. Nevertheless, CEO turnover is higher in those cases where the suites have merit, indicating that securities class action lawsuits do have a disciplining effect.

Pension Plan Funding and Corporate Debt Ratings

This article empirically examines the relationship between the funding of defined benefit pension plans and corporate debt ratings. The evidence indicates that unfunded pension liabilities reduce debt ratings more than an equivalent amount of excess pension assets increase debt ratings. This asymmetric relationship is consistent with the view that unfunded pension liabilities are corporate liabilities that compete with debt claims, but that there are costs associated with quickly accessing excess pension assets due to the mandated sharing of reverted excess assets.

The allocation of catastrophe risk

The potential losses from catastrophes have led financial researchers to address the following questions: (1) to what extent is catastrophe risk being shared (insured) and is the allocation of catastrophe risk consistent with notions of optimal risk sharing? (2) if not, what market imperfections hinder the efficient allocation of catastrophe risk? and (3) are there government policies or private market solutions that could lead to a more efficient allocation of catastrophe risk? This paper summarizes the research that has been conducted on these questions. � 2002 Elsevier Science B.V. All rights reserved.

Volatility and Underwriting Cycles

This paper describes and illustrates the main ideas and findings of research on the volatility and cyclical behavior of insurance prices relative to those predicted by a perfectly competitive market in long-run equilibrium. After presenting evidence that insurance market prices indeed follow a second order autoregressive process, we examine several lines of research that have tried to explain the cyclical behavior of insurance prices. Particular emphasis is given to the theoretical developments of and empirical results supporting capital shock models, which primarily explain periods of high insurance prices. We then summarize the idea that moral hazard and/or winners curse effects can explain periods of low insurance prices. Finally, the potential effects of regulation on insurance price volatility are summarized.

The Tax and Distributional Effects of Leveraged ESOPs

M In recent years, the number of publicly held firms sponsoring leveraged Employee Stock Ownership Plans (ESOPs) has grown significantly. Currently, more than 9,000 firms have ESOPs and over 9 million employees receive part of their compensation through ESOPS (see the National Center for Employee Ownership). Several factors are often advanced to explain leveraged ESOP adoptions, including their value in (i) providing tax benefits, (ii) increasing employee productivity, and (iii) defending against hostile takeovers. While each of these factors is a potential source of shareholder value, little evidence currently exists to show whether shareholders in ESOP firms realize any of these purported benefits. (For further discussion of the motivations for ESOP adoption, see Bruner [1], Chen and Kensinger [3], Scholes and Wolfson [6], and Chaplinsky and Niehaus [2].) Two important issues affect the ability of shareholders to benefit from ESOPs: (i) the corporate tax benefits from a leveraged ESOP and (ii) the effect of an ESOP on the distribution of cash flows between

Management turnover in subsidiaries of conglomerates versus stand-alone firms

An extensive prior literature documents the sensitivity of CEO turnover to performance. However, little is known about turnover in the firms internal labor market. We compare the likelihood of turnover following poor performance for a sample of subsidiary managers inside conglomerate firms to the likelihood of turnover of CEOs of comparable stand-alone firms. After controlling for a number of other factors, we find that subsidiary managers have a significantly higher likelihood of turnover following poor performance than CEOs of comparable stand-alone firms.

Insurance Price Volatility and Underwriting Cycles

This chapter reviews the literature on underwriting cycles and volatility in property-casualty insurance prices and profits. It provides a conceptual framework for assessing unexplained and possibly cyclical variation. It summarizes time series evidence of whether underwriting results follow a second-order autoregressive process and illustrates these findings using US property-casualty insurance market data during 1955–2009. The chapter then considers (1) evidence of whether underwriting results are stationary or cointegrated with macroeconomic factors, (2) theoretical and empirical work on the effects of shocks to capital on insurance supply, and (3) research on the extent and causes of price reductions during soft markets.

Managing Capital and Insolvency Risk via Internal Capital Market Transactions: The Case of Life Insurers

Understanding the movement of capital between insurers and affiliated companies under common ownership is important for understanding insurer insolvency risk and the impact of regulatory policies regarding capital standards and group supervision. Aggregate data indicate that life insurers received substantial internal capital contributions from other entities in their group and decreased the internal shareholder dividends paid during the financial crisis. Panel data estimates indicate that, on average, a dollar decrease in net income when net income is negative is associated with a

Fuel Risk Management at American Electric Power

0.32 increase in capital contributions from other entities in the group, and that a dollar increase in net income when net income is positive is associated with a

Duration, Systematic Risk, and Employee Valuation of Default-Free Pension Claims: Comment

0.56 increase in the amount of internal shareholder dividends paid by the insurer to other entities in the group. Also, insurers with low (high) risk-based capital ratios receive more (less) internal capital contributions than other insurers. While the sensitivity of internal capital movements to performance and capitalization is concentrated in groups with a large number of affiliates, insurers in these groups do not on average, holding other factors constant, have lower capital or lower liquidity ratios than insurers in groups with less active internal capital markets.