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N. Doherty, S. Tiniç (1981)
Reinsurance under Conditions of Capital Market Equilibrium: A NoteJournal of Finance, 36
D. Mayers, Clifford Smith (1987)
Corporate Insurance and the Underinvestment ProblemJournal of Risk and Insurance, 54
Footnotes 1 . See, for example, G. E. Rejda, Principles of Insurance (Glenview, Ill.: Scott Foresman, 1989), pp. 52–53; and C. A. Williams, Risk Management and Insurance (NewYork: McGraw Hill, 1989), Chapter 13. 2 . This discussion draws heavily on three articles by David Mayers and Clifford Smith, “On the Corporate Demand for Insurance,” Journal of Business (1982) , 281‐296; “The Corporate Insurance Decision,” Chase Financial Quarterly (Spring 1982), 47‐65; “ Corporate Insurance and the Underinvestment Problem ,” Journal of Risk and Insurance , LIV ( 1987 ), 45 – 54 . 3 . In the financial economics literature, risk aversion refers to an invidual who prefers the average outcome, or the “expected value” of a gamble, to taking a chance on the distribution of possible outcomes. Thus, a risk‐averse individual would pay to get out of a risky situation or, alternatively, would demand a higher rate of return for holding a riskier security. 4 . One of the cardinal principles of modern finance is that, on average and over long periods of time, investors both expect and receive rewards commensurate with the risks they bear. As the bulk of the academic evidence also shows, however, average resturns
Journal of Applied Corporate Finance – Wiley
Published: Sep 1, 1993
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