CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets
In this paper, we develop a contingent claim model to evaluate the equity, default risk, and efficiency gain/loss from managerial overconfidence of a shadow-banking life insurer under the purchases of distressed assets by the government. Our paper focuses on managerial overconfidence where the chief...
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doaj-990e23ee5ea74e29a526a60c8c6fcae62020-11-24T21:42:20ZengMDPI AGRisks2227-90912019-03-01712810.3390/risks7010028risks7010028CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed AssetsShi Chen0Jyh-Horng Lin1Wenyu Yao2Fu-Wei Huang3School of Economics, Southwestern University of Finance and Economics, Chengdu 611130, ChinaDepartment of International Business, Tamkang University, New Taipei City 25137, TaiwanSchool of Economics, Southwestern University of Finance and Economics, Chengdu 611130, ChinaDepartment of Management Sciences, Tamkang University, New Taipei City 25137, TaiwanIn this paper, we develop a contingent claim model to evaluate the equity, default risk, and efficiency gain/loss from managerial overconfidence of a shadow-banking life insurer under the purchases of distressed assets by the government. Our paper focuses on managerial overconfidence where the chief executive officer (CEO) overestimates the returns on investment. The investment market faced by the life insurer is imperfectly competitive, and investment is core to the provision of profit-sharing life insurance policies. We show that CEO overconfidence raises the default risk in the life insurer’s equity returns, thereby adversely affecting the financial stability. Either shadow-banking involvement or government bailout attenuates the unfavorable effect. There is an efficiency gain from CEO overconfidence to investment. Government bailout helps to reduce the life insurer’s default risk, but simultaneously reduce the efficiency gain from CEO overconfidence. Our results contribute to the managerial overconfidence literature linking insurer shadow-banking involvement and government bailout in particular during a financial crisis.http://www.mdpi.com/2227-9091/7/1/28profit-sharing life insurance policyCEO overconfidenceshadow-banking transactionbailout |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Shi Chen Jyh-Horng Lin Wenyu Yao Fu-Wei Huang |
spellingShingle |
Shi Chen Jyh-Horng Lin Wenyu Yao Fu-Wei Huang CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets Risks profit-sharing life insurance policy CEO overconfidence shadow-banking transaction bailout |
author_facet |
Shi Chen Jyh-Horng Lin Wenyu Yao Fu-Wei Huang |
author_sort |
Shi Chen |
title |
CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets |
title_short |
CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets |
title_full |
CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets |
title_fullStr |
CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets |
title_full_unstemmed |
CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets |
title_sort |
ceo overconfidence and shadow-banking life insurer performance under government purchases of distressed assets |
publisher |
MDPI AG |
series |
Risks |
issn |
2227-9091 |
publishDate |
2019-03-01 |
description |
In this paper, we develop a contingent claim model to evaluate the equity, default risk, and efficiency gain/loss from managerial overconfidence of a shadow-banking life insurer under the purchases of distressed assets by the government. Our paper focuses on managerial overconfidence where the chief executive officer (CEO) overestimates the returns on investment. The investment market faced by the life insurer is imperfectly competitive, and investment is core to the provision of profit-sharing life insurance policies. We show that CEO overconfidence raises the default risk in the life insurer’s equity returns, thereby adversely affecting the financial stability. Either shadow-banking involvement or government bailout attenuates the unfavorable effect. There is an efficiency gain from CEO overconfidence to investment. Government bailout helps to reduce the life insurer’s default risk, but simultaneously reduce the efficiency gain from CEO overconfidence. Our results contribute to the managerial overconfidence literature linking insurer shadow-banking involvement and government bailout in particular during a financial crisis. |
topic |
profit-sharing life insurance policy CEO overconfidence shadow-banking transaction bailout |
url |
http://www.mdpi.com/2227-9091/7/1/28 |
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