Determinants of Corporate Demand for Property Insurance

Motive for the purchase of insurance by individuals is differing among the firms. Risk aversion is the main motive for the purchase of insurance by individuals. But, incentive to purchase of insurance by firms is affected by many factors. Researchers have argued several theories about the motive of corporate for purchasing insurance. Expected bankruptcy costs, tax consideration, firm size, share ownership, operational leverage, underinvestment and type of industry are reasons of corporate demand for insurance. In this study, we have surveyed effective factors on the demand for property insurance by using 1387-88 panel data of publicly listed companies operating in Tehran Stock Exchange. Our results indicate that, consistent with our hypotheses, large companies with high bankruptcy costs and financial risks profiles are likely to purchase greater amounts of property insurance than other companies. We also find that industry type have significant effect on the purchase of property insurance by corporates. Additionally, service companies purchase more property insurance than other companies. Contrary to what we expected, tax incentive, majority shareholders and underinvestment were not found to be important determinants of the corporate purchase of property insurance in the publicly listed companies operating in Tehran Stock Exchange.