Production Diversification and Financial Risk

• Main Authors: Chung-En Huang, 黃崇恩
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/59324160561242554941

碩士 === 國立雲林科技大學 === 財務金融系碩士班 === 101 === This paper examines the impact of product and geographic diversification on performance of U.S. insurance companies over 2004 – 2009. We use return on asset (ROA), return on equity (ROE), adjusted return on asset (ZROA) and adjusted return on equity (ZROE) as the measurement for a company’s performance. The standard deviation of ROA (SIGMAROA) and standard deviation of ROE (SIGMAROE) are proxies of earnings volatility. The results show that product diversification has negative effect on performance with lower return volatility. This finding implies that cost of product diversification outweighs the benefits. In contrast, geographic diversification has positive effect on performance with higher return volatility. This finding demonstrates that higher level of geographic concentration could increase risk. We also find that an increase of marginal benefit by increase in commercial line share is not significant, but will be traded off by an increase of marginal cost from product diversity, particularly for the companies with low commercial line share.