Puneet Prakash

Risk-Taking and Performance of Public Insurers: An International Comparison

We investigate how investor protection, government quality, and contract enforcement affect risk taking and performance of insurance companies from around the world. We find that better investor protection results in less risk taking, as do higher quality government and greater contract enforceability. However, we find only limited evidence that these factors influence firm performance. We conclude that better overall operating environments result in less risk taking by insurers without the concomitant decline in performance. These results imply that better investor protection environments benefit policyholders and outside stockholders by preventing corporate insiders from expropriating wealth from policyholders and outside stockholders.

Can Aversion to Variance Risk be Evidence of Risk Seeking Preferences? Evidence from Returns to VC Backed IPOs

In this paper, we examine how venture capital portfolios with risk averse and risk seeking return characteristics are priced by the representative investor in public equity markets. We find only portfolios with risk seeking return characteristics are associated with a market skewness premium. Also, while the representative investors aversion to variance risk and skewness preference are positively correlated in the pricing of portfolios with risk seeking return characteristics, they are negatively correlated in the pricing of portfolios with risk averse return characteristics. Our findings (a) show skewness preference is evidence of risk seeking behavior or preferences, and as such is inconsistent with globally concave utility functions; (b) indicate portfolio diversification (aversion to variance risk) can be evidence of risk averse or risk seeking preferences; and (c) establish empirically testable conditions for distinguishing between risk averse and risk seeking preferences.

Why Did Non-Dividend Paying Firms Benefit More from the 2003 Dividend Tax Cut? Evidence from SEOs

This paper shows that for a sample of firms offering SEOs non dividend paying firms experienced larger valuation gains from the 2003 dividend tax cut as compared to dividend paying firms. Using a growth option valuation framework, our findings indicate that the growth option revaluation benefited the non dividend paying firms more. In particular, the book leverage exhibited a significant increase in the valuation of the option for non dividend paying firms, but not for dividend paying firms. The finding is consistent with theories of optimal leverage which contend debt reduces costs of overinvestment.