Effective factors in corporate demand for insurance:empirical evidence from Iran

Corporations and individuals purchase insurance with different motivation. Risk aversion is individuals’ main incentive in the purchase of insurance policy, while corporations’ motivation for insurance policy purchasing is influenced by a variety of factors. Researchers have proposed several theories on corporate incentives for purchasing insurance policies. Among reasons for corporation’s insurance demand, transaction costs, expected bankruptcy costs, tax optimization, firm size, share ownership, debt to asset ratio (leverage), underinvestment and type of industry can be referred to. Since it is difficult to get access to information about corporate insurance purchase, few empirical studies have been done in this subject. In this study, critical factors in demand for property insurance by the listed companies on Tehran Stock Exchange during 2008-2009 have been investigated. Research’s results, in accordance to our hypothesis, show that large companies with higher bankruptcy costs and operational risk compared to other companies demand more property insurance. In addition, type of industry has a significant effect on the amount of insurance purchase by corporate. Companies operating in service industry demand more property insurance relative to other companies. Contrary to our expectations, tax incentives, majority shareholders ratio and underinvestment were not found as determinants of property insurance purchase by the listed companies in the stock exchange.

insurance demand, insurance, corporate demand, enterprise risk management