Qiongqi Xiao’s Three Minute Thesis

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The Audit Committee, Insurer’s Characteristics and Cost Equity: Evidence from US Property-Liability

 

This study examines the effects of the audit committee and insurer characteristics on the cost of equity in publicly traded property-liability insurance companies. We find that audit committee size is significantly and positively related to the cost of equity, while the proportion of financial experts on the board and the number of audit committee meetings each year are significantly and negatively related to the cost of equity. Among the insurer’s characteristics, the reinsurance ratio is significantly and negatively related to the cost of equity, while investment risk and underwriting risk are significantly and positively related to the cost of equity. Furthermore, during the financial crisis, the cost of equity increased significantly. Finally, the cost of equity decreased significantly after the implementation of SOX.