| Summary: | 碩士 === 國立臺灣大學 === 會計學研究所 === 89 === The main purpose of this study is to examine whether the value of common equity of insurers behaves as if the capital markets identify the discretionary characteristic of reported loss reserves and price it differently in accessing the liabilities of insurers. This paper also examines whether market participants implicitly assign different multiples to balance sheet components when valuing security prices.
Utilizing insurance companies listed on Taiwan Stock Exchange from 1993 to 2000 as samples, this paper investigates market reactions to reported loss reserves and other balance sheet components. Major findings are summarized as follows:
1.The coefficient on loss reserves (RE) is negative and statistically significant. This finding is consistent with investors’ perceiving that insurers may exercise possible intentional manipulation through the understatement of loss reserves to meet the financial reporting purpose.
2.Financial assets (FA) and long-term investments (LI) are positively correlated with the market value of insurers’ equity. This finding suggests that market participants will take FA and LI into consideration when valuing security prices and will assign positive coefficients to them.
3.The coefficients on both claims recoverable from reinsurance (CRR) and other liabilities (OL) are not significantly different from zero. It appears that investors do not take these two components into consideration when it comes to valuing security prices.
4.The coefficient on non-financial assets (NFA) has the unexpected negative sign and is statistically significant. This finding implies that measurement error may exist between book value and market value of fixed assets and investment on real estates.
5.The coefficient on net income (NI) has the correct positive sign and is significant in 26 out of 31 quarters, which implies that some quarters do not have the expected results. This is probably because our nation encountered severe earthquake at that time and the coming-up presidential election also made economic situation unstable, so the stock market sunk during a market downturn. Therefore, coefficients on net income of some quarters are negatively correlated with the market value of insurers’equity.
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