TY - JOUR
T1 - Portfolio rebalancing behavior with operating losses and investment regulation
AU - Boyer, M. Martin
AU - Cowins, Elicia P.
AU - Reddic, Willie D.
N1 - Funding Information:
We thank the Social Sciences and Humanities Research Council of Canada (grant # 435-2018-1536) for partially financing this project, which was started when the third author was a visiting scholar in the Department of Finance at HEC Montréal. The first author wishes to acknowledge the continuing support of the Direction de la recherche at HEC Montréal and of CIRANO.
Funding Information:
We thank the Social Sciences and Humanities Research Council of Canada (grant # 435-2018-1536 ) for partially financing this project, which was started when the third author was a visiting scholar in the Department of Finance at HEC Montréal. The first author wishes to acknowledge the continuing support of the Direction de la recherche at HEC Montréal and of CIRANO.
Publisher Copyright:
© 2018 Elsevier Inc.
PY - 2019/9
Y1 - 2019/9
N2 - Firms should make every attempt to reduce their tax burden by, for instance, preferring higher-yield taxable investments when faced with operating losses and lower-yield tax-exempt investments otherwise. We examine in this paper whether there are impediments to rebalancing which result from a firm's regulatory environment. Using an original measure of investment regulatory stringency that U.S. property and casualty insurers encounter, we find that insurers operating in more stringent regulatory environments receive a lower percentage of their investment income from taxable sources. We conclude that regulatory constraints limit insurers from rebalancing efficiently their investment portfolio in response to operational performance.
AB - Firms should make every attempt to reduce their tax burden by, for instance, preferring higher-yield taxable investments when faced with operating losses and lower-yield tax-exempt investments otherwise. We examine in this paper whether there are impediments to rebalancing which result from a firm's regulatory environment. Using an original measure of investment regulatory stringency that U.S. property and casualty insurers encounter, we find that insurers operating in more stringent regulatory environments receive a lower percentage of their investment income from taxable sources. We conclude that regulatory constraints limit insurers from rebalancing efficiently their investment portfolio in response to operational performance.
KW - Property and casualty insurance
KW - Regulatory investment limitations
KW - Statutory accounting principles
KW - Tax-exempt and taxable securities
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U2 - 10.1016/j.iref.2018.10.001
DO - 10.1016/j.iref.2018.10.001
M3 - Article
AN - SCOPUS:85071443986
SN - 1059-0560
VL - 63
SP - 313
EP - 328
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
ER -