How Do Financial Constraints Affect Product Pricing? Evidence from Weather and Life Insurance Premiums

• 成果类型: Article
• 署名作者: Ge, Shan
• 署名单位: New York University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13093
• 发表日期: 2022
• 页码: 449-503
• 关键词: internal capital-markets; dark side; FIRMS; INVESTMENT; COMPETITION; strength; BEHAVIOR; cost; meteorology; management

摘要

I identify the effects of financial constraints on firms' product pricing decisions, using insurance groups containing both life and property & casualty (P&C) divisions. Following P&C divisions' losses, life divisions change prices in a manner that can generate more immediate financial resources: premiums fall (rise) for life policies that immediately increase (decrease) insurers' financial resources. Premiums change more in groups that are more constrained. Life divisions increase transfers to P&C divisions, suggesting P&C divisions' shocks are transmitted to life divisions. Results hold when instrumenting for P&C divisions' losses with exposure to unusual weather damages, implying that the effects are causal.