Journal of Finance Vol. 77 No. 1 2022
How Do Financial Constraints Affect Product Pricing? Evidence from Weather and Life Insurance Premiums
Abstract
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.
- DOI
- 10.1111/jofi.13093
- Volume
- 77
- Issue
- 1
- Pages
- 449-503
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref