Product Liability Insurance and Enterprise Risk Management

The purpose of this paper is to study the relationship between product liability insurance and enterprise risk management. The analyses include four constructs: (1) alternative risk management tools, (2) corporate finance, (3) firm features, and (4) business operation efficiency. The empirical results support Ehrilich and Becker (1972) that insurance and other risk control programs can be complements and support Culp (2001) that risk management can play the role of efficiency enhancer in addition to the role of classical risk controller. Additionally, this study finds that risk management for product liability may stabilize the volatility of stock returns but does not increase the firm value.