Determinants of the issuance of hybrid securities by insurers from the perspective of IAS 32
DOI:
https://doi.org/10.1590/1808-057x20242123.ptPalabras clave:
hybrid financial instruments, financial instruments with characteristics of equity, insurance companies, IAS 32, pecking order theoryResumen
This study aims to evaluate the relationship between the issuance of hybrid financial instruments by insurance firms and various potential determinants. Specifically, it investigates how factors such as asset size, cost of capital, duration gaps, effective tax rates, and liquidity and solvency ratios influence the propensity of insurers to issue hybrid bonds. Empirical research often overlooks financial firms such as insurance companies when examining hybrid securities, making it difficult to assess their motivations and decision-making processes. Our study aims to fill this gap. In November 2023, the International Accounting Standards Board (IASB) published the Exposure Draft Financial Instruments with Characteristics of Equity – Proposed Amendments to IAS 32 Financial Instruments. The board awaited comments and proposals on the text until the end of March 2024. Therefore, an in-depth study of its relationship with hybrid securities is timely. Our study aims to add new elements to the discussion on the capital structure of companies. The proposed amendment to IAS 32 will certainly influence companies’ decisions regarding their capital structure. We applied a logit regression model using the panel data methodology to a dataset of 207 active insurers operating in 25 different countries (public companies). We constructed a database of several publicly traded international insurance companies located in different countries to assess their differences in terms of propensity to issue hybrid financial instruments. Our study reveals that the likelihood of issuing hybrid bonds increases for larger insurance firms with higher costs of capital and leverage, particularly in jurisdictions with significant duration gaps. These findings support the financial health/pecking order theory and contribute valuable insights to both the academic literature and industry practice. By examining the determinants of the issuance of hybrid financial instruments, this research provides a nuanced understanding of the decision-making processes within the insurance sector and fills a notable gap in empirical studies.
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