Hostname: page-component-848d4c4894-4rdrl Total loading time: 0 Render date: 2024-07-04T23:02:54.533Z Has data issue: false hasContentIssue false
  • English
  • Français

Corporate Philanthropy and Risk Management: An Investigation of Reinsurance and Charitable Giving in Insurance Firms

Published online by Cambridge University Press:  07 December 2016

Mike Adams ,
Stefan Hoejmose  and
Zafeira Kastrinaki
Mike Adams
Affiliation:
University of Bath
Stefan Hoejmose
Affiliation:
University of Bath
Zafeira Kastrinaki
Affiliation:
University of Bath
Get access Rights & Permissions [Opens in a new window]

Abstract:

Drawing a framework from strategic stakeholder theory and using 1999 to 2010 panel data from the United Kingdom’s (UK) non-life insurance industry, we examine the effect of reinsurance on the decisions to donate to charities, and the amount given. We find that reinsurance substitutes for charitable giving as it optimizes the interests of multiple stakeholders. We further note that corporate giving is directly related to the size and age of insurers, proportion of female directorships and insider ownership, but generally inhibited by chief executive officer (CEO) bonus plans, dominant shareholders, and financial experts on the board. Interestingly, when reinsurance interacts with board-level variables we find that the donations decision is positively related to CEO bonus plans, and negatively linked with inside ownership and the proportion of female board members. Our research results could have important implications for stakeholders.

Keywords

philanthropyreinsuranceinsurance industryUnited Kingdom (UK)
Type
Articles
Information
Business Ethics Quarterly , Volume 27 , Issue 1 , January 2017 , pp. 1 - 37
Copyright
Copyright © Society for Business Ethics 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Abdul Kader, H., Adams, M. B., & Mouratidis, K. 2010. Testing for trade-offs in the reinsurance decision of U.K. life insurance firms. Journal of Accounting, Auditing and Finance, 25: 491–522.CrossRefGoogle Scholar
Adams, M., & Hardwick, P. 1998. An analysis of corporate donations: United Kingdom evidence. Journal of Management Studies, 35: 641–654.CrossRefGoogle Scholar
Adams, R. B., & Ferreira, D. 2009. Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94: 291–309.CrossRefGoogle Scholar
Agle, B. R., Mitchell, R. K., & Sonnenfield, J. A. 1999. Who matters to CEOs? An investigation of stakeholder attributes and salience, corporate performance, and CEO values. Academy of Management Journal, 47: 507–525.CrossRefGoogle Scholar
Aguinis, H., & Glavas, A. 2012. What we know and don’t know about corporate social responsibility: A review and research agenda. Journal of Management, 38: 932–968.CrossRefGoogle Scholar
Association of Chartered Certified Accountants (ACCA). 2011. CSR report 2010/11. London: ACCA.Google Scholar
Atkins, D., Fitzsimmons, A., Parsons, C., & Punter, A. 2011. Roads to ruin. A study of major risk events: Their origins, impact and implications. London: Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC).Google Scholar
Baker, T. 2000. Insuring morality. Economy and Society, 29: 559–577.CrossRefGoogle Scholar
Barnett, M. L., & Salomon, R. M. 2012. Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Strategic Management Journal, 33: 1304–1320.CrossRefGoogle Scholar
Bhambri, A., & Sonnenfeld, J. 1988. Organization structure and corporate social performance: A field study in two contrasting industries. Academy of Management Journal, 31: 642–662.CrossRefGoogle Scholar
Boubakri, N., Dionne, G., & Triki, T. 2008. Consolidation and value creation in the insurance industry: The role of governance. Journal of Banking and Finance, 32: 56–88.CrossRefGoogle Scholar
Brammer, S., & Millington, A. 2003. The effect of stakeholder preferences, organizational structure and industry type on corporate community involvement. Journal of Business Ethics, 45: 213–226.CrossRefGoogle Scholar
Brammer, S., & Millington, A. 2004. The development of corporate charitable contributions in the UK: A stakeholder analysis. Journal of Management Studies, 41: 1411–1434.CrossRefGoogle Scholar
Brammer, S., & Millington, A. 2008. Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29: 1325–1343.CrossRefGoogle Scholar
Brammer, S., Millington, A., & Pavelin, S. 2009. Corporate reputation and women on the board. British Journal of Management, 20: 17–29.CrossRefGoogle Scholar
Brammer, S., & Pavelin, S. 2006. Corporate reputation and social performance: The importance of fit. Journal of Management Studies, 43: 435–455.CrossRefGoogle Scholar
Brickley, J. A., & Zimmerman, J. L. 2010. Corporate governance myths: Comments on Armstrong, Guay & Weber. Journal of Accounting and Economics, 50: 235–245.CrossRefGoogle Scholar
Brown, W. O., Helland, E., & Smith, J. K. 2006. Corporate philanthropic practices. Journal of Corporate Finance, 12: 855–877.CrossRefGoogle Scholar
Cadbury, A. 1992. Report of the committee on the financial aspects of corporate governance. London: Gee Publishing.Google Scholar
Carroll, A. B. 1979. A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4: 497–505.CrossRefGoogle Scholar
Chiu, S-C., & Sharfman, M. 2011. Legitimacy, visibility, and the antecedents of corporate social performance: An investigation of the instrumental perspective. Journal of Management, 37: 1558–1585.CrossRefGoogle Scholar
Coffey, B. S., & Wang, J. 1998. Board diversity and managerial control as predictors of corporate social performance. Journal of Business Ethics, 17: 1595–1603.CrossRefGoogle Scholar
Cole, C. R., He, E., McCullough, K. A., Semykina, A., & Sommer, D. W. 2011. An empirical examination of stakeholder groups as monitoring sources in corporate governance. Journal of Risk and Insurance, 78: 703–730.CrossRefGoogle Scholar
Coombs, J. E., & Gilley, M. 2005. Stakeholder management as a predictor of CEO compensation: Main effects and interactions with financial performance. Strategic Management Journal, 26: 827–840.CrossRefGoogle Scholar
den Hond, F., Rehbein, K. A., de Bakker, F. G. A., & Lankveld, H. K. 2014. Playing on two chessboards: Reputation effects between corporate social responsibility (CSR) and corporate political activity (CPA). Journal of Management Studies, 51: 79–813.CrossRefGoogle Scholar
Dewing, I. P., & Russell, P. O. 2008. The individualization of corporate governance: The approved persons’ regime for UK financial services firms. Accounting, Auditing and Accountability Journal, 21: 978–1000.CrossRefGoogle Scholar
El Akremi, A., Gond, J-P., Swaen, V., De Roeck, K., & Igalens, J. 2016. How do employees perceive corporate responsibility? Development and validation of a multidimensional corporate stakeholder responsibility scale. Journal of Management, 42, in press.Google Scholar
Entine, J. 2003. The myth of social investing. Organization & Environment, 16: 352–368.CrossRefGoogle Scholar
Freeman, E. 1984. A stakeholder approach. Marshfield, MA: Pitman.Google Scholar
Froot, K. A., & O’Connell, P. G. J. 2008. On the pricing of intermediated risks: Theory and application to catastrophe reinsurance. Journal of Banking and Finance, 32: 69–85.CrossRefGoogle Scholar
Gaa, J. C., & Krinsky, I. 1988. The demand for regulation of financial disclosures: The case of the insurance industry. Journal of Business Ethics, 7: 29–39.CrossRefGoogle Scholar
Godfrey, P. C. 2005. The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30: 777–798.CrossRefGoogle Scholar
Godfrey, P. C., Hatch, N. W., & Hansen, J. M. 2010. Toward a general theory of CSRs. The roles of beneficence, profitability, insurance, and industry heterogeneity. Business and Society, 49: 316–344.CrossRefGoogle Scholar
Godfrey, P. C., Merrill, C. B., & Hansen, J. M. 2009. The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30: 425–445.CrossRefGoogle Scholar
Greene, W. H. 2003. Econometric analysis. New York: McGraw-Hill.Google Scholar
Hambrick, D. C., Werder, A. V., & Zajac, E. J. 2008. New directions in corporate governance research. Organization Science, 19: 381–385.CrossRefGoogle Scholar
Hardwick, P., Adams, M., & Zou, H. 2011. Board characteristics and profit efficiency in the United Kingdom life insurance industry. Journal of Business Finance and Accounting, 38: 987–1015.CrossRefGoogle Scholar
Harjoto, M. A., & Jo, H. 2011. Corporate governance and CSR nexus. Journal of Business Ethics, 100: 45–67.CrossRefGoogle Scholar
Hausman, J. A. 1978. Specification tests in econometrics. Econometrica, 46: 1251–1271.CrossRefGoogle Scholar
Heckman, J. 1979. Sample selection bias as a specification error. Econometrica, 47: 153–161.CrossRefGoogle Scholar
Heckman, J. 1981. Statistical models for discrete panel data. In Manski, C. & McFadden, D. (Eds.), The structural analysis of discrete data. Cambridge, MA: MIT Press.Google Scholar
Hoetker, G. 2007. The use of logit and probit models in strategic management research: Critical issues. Strategic Management Journal, 28: 331–343.CrossRefGoogle Scholar
Hsu, K-T. 2012. The advertising effects of corporate social responsibility on corporate reputation and brand equity: Evidence from the life insurance industry in Taiwan. Journal of Business Ethics, 109: 189–201.CrossRefGoogle Scholar
Ibrahim, N. A., Howard, D. P., & Angelidis, J. P. 2003. Board members in the service industry: An empirical examination of the relationship between corporate social responsibility orientation and directorial type. Journal of Business Ethics, 47: 393–401.CrossRefGoogle Scholar
International Underwriting Association (IUA). 2013. London company market statistics report 2013. IUA: London.Google Scholar
Jaccard, J., Turrisi, R., & Wan, C. K. 1990. Interaction effects in multiple regression. Sage University Paper Series on Quantitative Applications in the Social Sciences, 07–069. Newbury Park, CA: Sage Publications.Google ScholarPubMed
Jensen, M. C. 2002. Value maximization, stakeholder theory, and the corporate objective function. Business Ethics Quarterly, 12: 235–256.CrossRefGoogle Scholar
Jia, N. 2013. Competition, governance, and relationship-specific investments: Theory and implications for strategy. Strategic Management Journal, 34: 1551–1567.CrossRefGoogle Scholar
Jia, N. 2014. Are collective political actions and private political actions substitutes or complements? Empirical evidence from China’s private sector. Strategic Management Journal, 35: 292–315.CrossRefGoogle Scholar
Jo, H., & Harjoto, M. A. 2011. Corporate governance and firm value: The impact of corporate social responsibility. Journal of Business Ethics, 103: 351–383.CrossRefGoogle Scholar
Jo, H., & Na, H. 2012. Does CSR reduce firm risk? Evidence from controversial industry sectors. Journal of Business Ethics, 110: 441–456.CrossRefGoogle Scholar
Kaler, J. 2003. Differentiating stakeholder theories. Journal of Business Ethics, 46: 71–83.CrossRefGoogle Scholar
Kaler, J. 2006. Evaluating stakeholder theory. Journal of Business Ethics, 69: 249–268.CrossRefGoogle Scholar
Kennedy, P. 2003. A guide to econometrics. Oxford: Blackwell.Google Scholar
Koehn, D., & Ueng, J. 2010. Is philanthropy being used by corporate wrongdoers to buy goodwill? Journal of Management and Governance, 14: 1–16.CrossRefGoogle Scholar
Koh, P.-S., Qian, C., & Wang, H. 2014. Firm litigation risk and the insurance value of corporate social performance. Strategic Management Journal, 35: 1464–1482.CrossRefGoogle Scholar
Krüger, P. 2015. Corporate goodness and shareholder wealth. Journal of Financial Economics, 115: 304–329.CrossRefGoogle Scholar
Kvalnes, Ø. 2011. Blurred promises: Ethical consequences of fine print policies in insurance. Journal of Business Ethics, 103: 77–86.CrossRefGoogle Scholar
Lan, L. L., & Heracleous, L. 2010. Rethinking agency theory: The view from law. Academy of Management Review, 35: 294–314.Google Scholar
Laplume, A. O., Sonpar, K., & Litz, R. A. 2008. Stakeholder theory: Reviewing a theory that moves us. Journal of Management, 34: 1152–1189.CrossRefGoogle Scholar
Li, S. X., & Greenwood, R. 2004. The effect of within-industry diversification on firm performance: Synergy creation, multi-market contact, and market structuration. Strategic Management Journal, 25: 1131–1153.CrossRefGoogle Scholar
Lin, C., Lin, P., & Zou, H. 2012. Does property rights protection affect corporate risk management strategy? Intra- and cross-country evidence, Journal of Corporate Finance, 18: 311–330.CrossRefGoogle Scholar
Lloyd’s of London. 2014. Lloyd’s 2014 Annual Report. London: Lloyd’s.Google Scholar
Mahoney, L. S., & Thorn, L. 2006. An examination of the structure of executive compensation and corporate social responsibility. Journal of Business Ethics, 69: 149–162.CrossRefGoogle Scholar
Marquis, C., & Qian, C. 2014. Corporate social responsibility reporting in China: Symbol or substance? Organization Science, 25: 127–148.CrossRefGoogle Scholar
Masulis, R. W., & Reza, S. W. 2015. Agency problems of corporate philanthropy. Review of Financial Studies, 28: 592–636.CrossRefGoogle Scholar
McKinsey & Company. 2015. Charitable giving in the property and casualty insurance industry: An update. New York: McKinsey & Company.Google Scholar
McWilliams, A., & Siegel, D. 2000. Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21: 603–609.3.0.CO;2-3>CrossRefGoogle Scholar
Moore, G. 2001. Corporate social and financial performance: An investigation in the U.K. supermarket industry. Journal of Business Ethics, 34: 299–315.CrossRefGoogle Scholar
Muller, A. R., Pfarrer, M. D., & Little, L. M. 2014. A theory of collective empathy in corporate philanthropy decisions. Academy of Management Review, 39: 1–21.CrossRefGoogle Scholar
Navarro, P. 1988. Why do corporations give to charity? Journal of Business, 61: 65–93.CrossRefGoogle Scholar
Peloza, J. 2006. Using corporate social responsibility as insurance for financial performance. California Management Review, 48: 52–72.CrossRefGoogle Scholar
Pharoah, C., & Walker, C. 2015. The values of corporate giving: An overview of models and case studies. London: Cass University Business School.Google Scholar
Phillips, R. 1997. Stakeholder theory and a principle of fairness. Business Ethics Quarterly, 7: 51–66.CrossRefGoogle Scholar
Phillips, R. 2003. Stakeholder legitimacy. Business Ethics Quarterly, 13: 25–41.CrossRefGoogle Scholar
Phillips, R., Freeman, R. E., & Wicks, A. C. 2003. What stakeholder theory is not. Business Ethics Quarterly, 13: 479–502.CrossRefGoogle Scholar
Rochet, J-C., & Villebeuve, S. 2011. Liquidity management and corporate demand for hedging and insurance. Journal of Financial Intermediation, 20: 303–323.CrossRefGoogle Scholar
Schwartz, M. S., & Carroll, A. B. 2003. Corporate social responsibility: A three-domain approach. Business Ethics Quarterly, 13: 503–530.CrossRefGoogle Scholar
Suchman, M. C. 1995. Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20: 571–610.CrossRefGoogle Scholar
UK Companies Act. 1985. London: HMSO.Google Scholar
UK Companies Act 2006. London: HMSO.Google Scholar
UK Financial Services and Markets Act. 2000. London: HMSO.Google Scholar
Upreti, V., & Adams, M. 2015. The strategic role of reinsurance in the United Kingdom’s (UK) non-life insurance market. Journal of Banking and Finance, 61: 206–219.CrossRefGoogle Scholar
Walls, J. L., Berrone, P., & Phan, P. H. 2012. Corporate governance and environmental performance: Is there really a link? Strategic Management Journal, 33: 885–913.CrossRefGoogle Scholar
Webb, D., & Pettigrew, A. 1999. The temporal development of strategy: Patterns in the U.K. insurance industry. Organization Science, 10: 601–621.CrossRefGoogle Scholar
WestLB AG. 2004. Insurance and sustainability: Playing with fire. London: WestLB AG.Google Scholar
Wu, M-W., & Shen, C-H. 2013. Corporate social responsibility in the banking industry: Motives and financial performance. Journal of Banking and Finance, 37: 3529–3547.CrossRefGoogle Scholar
Zimmeck, M., & Pharoah, C. 2015. The Values of corporate giving: An update on key figures and trends. London: Cass Business School.Google Scholar
Zou, H., & Adams, M. B. 2008. Debt capacity, cost of debt, and corporate insurance. Journal of Financial and Quantitative Analysis, 43: 433–466.CrossRefGoogle Scholar