Does Insurance Matter for Corporate Firm in Malaysia? Evidence from a Pooled Data of Takaful and Conventional Insurance

Abstract

The objective of this study is to investigate the factors affecting corporate demand for property takaful and insurance using data of non-financial firms listed on the main board of Bursa Malaysia. Corporate demand for general takaful and insurance products has continuously risen, evident by the increasing value in premiums collection of general insurance and takaful. Over 50 percent of total general insurance and takaful premiums were contributed by business corporations. A pooled data on the corporate demand for takaful and conventional insurance were used in this study. Panel data regression models were employed for a five-year period from year 2002 to 2006. This study finds that leverage, expected bankruptcy costs, firm size, managerial ownership and tax consideration are the factors affecting corporate demand for insurance in Malaysia. Our conclusions are robust to alternative specifications of the model of GLS with Fixed Effects that help us to control for unobservable heterogeneity. This study gives some important implications for various groups like the insurers and takaful operators, shareholders and creditors as well as the regulators in reflecting factors that determine the corporate demand for takaful and insurance in Malaysia.Insurance