| In spite of the fact that insurance purchases constitute a major use of corporate resources in both the financial and nonfinancial sectors of the economy, the topic of the demand for insurance by widely held firms has received scant attention in the corporate finance literature. The purpose of the dissertation is to provide an analysis of the valuation implications of corporate insurance purchases which is logically consistent with modern finance theory. Specifically, the incorporation of various market imperfections into the analysis yields a valuation model which demonstrates the relevance of the corporate insurance decision under a fairly weak set of assumptions. Once the notion of corporate insurance relevance is established, various comparative static results which lead to the statement of potentially testable propositions and corollaries are shown. Subsequently, an extension of the basic valuation model is provided which presents a theoretical justification for the recent emergence of the captive insurance industry. Finally, the dissertation is concluded with a model which provides an analysis of the valuation implications of reinsurance purchases by insurance firms. |
