The enactment of property–casualty insurance guaranty fund statutes in the US was associated with a decrease in insurers' reserves for Homeowners and Commercial Multi-Peril insurance. The evidence is: loss ratios among states enacting guaranty fund statutes declined relative to other states. Tests on loss accruals confirm that the effect was due to decrease in reserves. Other tests that distinguish between guaranty fund statutes offer no evidence that guaranty funds encouraged sound insurers to monitor competitors and assist regulators in identifying weak insurers. Instead, the data are consistent with an explanation where insurance regulators identify and discourage risk-increasing activity.

We study the role of banking relationships in IPO underwriting. When a firm in Japan goes public, it can engage an investment bank that is related through a common main bank, or can select an alternative investment bank. The main bank relationship can be an efficient way for the investment bank to acquire information generated by the main bank, but may give rise to conflicts of interest. We find that main bank relationships give small issuers increased access to equity capital markets, but that issuers of large IPOs often switch to non-related investment banks that are capable of managing large offerings. While investment banks seek to exploit bargaining power with related issuers, issuers respond to expected high issue cost by switching to non-related investment banks. The net result is that total issue costs through related and non-related investment banks are similar. With respect to aftermarket performance and use of proceeds, we find no evidence of conflict of interest or self-dealing for either the main bank or the investment bank.