CEO political orientation, risk-taking and firm performance: Evidence from the U.S. property-liability insurance industry

Abstract

We examine how CEOs’ political orientation can affect risk-taking behavior and firm performance in U.S. property-liability insurance companies. Using information on political donations made by CEOs to measure their political identity, we document a strong relationship between CEOs’ political conservatism and risk-averse behavior in insurers’ decision-making. We find that the more Republican leaning (or more politically conservative) a CEO is, the less risk a property-liability insurer tends to take in the capital market and underwriting business. We also provide evidence that insurers managed by Republican-oriented CEOs are more likely to achieve better financial profitability. The overall findings lead to the conclusion that property-liability insurers with politically conservative CEOs tend to have lower variability in their asset investments and underwriting business but are more likely to generate sufficient corporate value to satisfy their shareholders and policyholders. Unlike other relevant studies, our research attempts to address impacts of corporate governance and potential causality issues and shows that an insurer with a politically conservative CEO and more board members having multiple directorships is likely to take more risks. Our findings can offer important implications for property-liability insurers’ leadership in managing corporate risks and core business activities. © 2022, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.