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Debt as a value creation tool in the short-term insurance industry
Dissertation (MBA)--University of Pretoria, 2010.
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University of Pretoria
2013
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| _version_ | 1867613682707464192 |
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| access_status_str | Open Access |
| author2 | MacKenzie, Max |
| author_browse | MacKenzie, Max |
| author_facet | MacKenzie, Max |
| collection | Thesis |
| dc_rights_str_mv | © 2008, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria |
| description | Dissertation (MBA)--University of Pretoria, 2010. |
| format | Thesis |
| id | oai:repository.up.ac.za:2263/23140 |
| institution | University of Pretoria (South Africa) |
| last_indexed | 2026-06-10T12:40:01.664Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UPSpace — University of Pretoria Institutional Repository |
| publishDate | 2013 |
| publishDateRange | 2013 |
| publishDateSort | 2013 |
| publisher | University of Pretoria |
| publisherStr | University of Pretoria |
| record_format | dspace |
| source_str | UPSpace — University of Pretoria Institutional Repository |
| spelling | oai:repository.up.ac.za:2263/23140 Debt as a value creation tool in the short-term insurance industry MacKenzie, Max donck2001@yahoo.com Lekola, Kgomotso UCTD Insurance policies Dissertation (MBA)--University of Pretoria, 2010. The role of debt in the capital structure of companies as a value driver (Modigliani and Miller, 1963; Jensen and Meckling, 1976; Ross, 1977) as well as in increasing the strategic agility of companies as can be concluded from O'Brien (2003), Kochhart and Hitt (1998), Barton and Gordon (1987) and Sandberg, Lewellen, and Stanley (1987), in general, is contentious given the potential risk of financial distress introduced by it. This study aims to assess whether the introduction of debt, and increase in financial leverage would have any impact on the firm value of short-term insurance companies given the nature of the business. Tobin’s Q (Staking and Babel, 1995), the ratio of the market value of a company to the liquidation value of the company’s assets is developed and used as a key proxy for the franchise value of an insurance company (O'Brien, 2003; DaDalt, Donaldson, and Garner, 2003; Keeley, 1990). Multiple regression analyses is then performed on a sample of listed short-term insurers over an 11 year period to assess the relationship between their financial leverage, franchise value and other key ratios used to determine the value of insurance companies (ROE and underwriting return), with risk being implicit in the franchise value variable. The results show no causal relationship between financial leverage and franchise value or risk which would have been represented by a declining Q. Insurance leverage however is found to be a good predictor of Q. The implication is that short-term insurance companies could borrow money without destroying much value in the short run. The companies could use the borrowed money to fund strategic projects that could add value in the long run. Copyright Gordon Institute of Business Science (GIBS) unrestricted 2013-09-06T14:38:58Z 2010-05-26 2013-09-06T14:38:58Z 2009-11-13 2010-05-26 2010-03-12 Dissertation Lekola, KDC 2008, Debt as a value creation tool in the short-term insurance industry, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://hdl.handle.net/2263/23140 > G10/36/mh http://hdl.handle.net/2263/23140 http://upetd.up.ac.za/thesis/available/etd-03122010-155605/ © 2008, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria application/pdf University of Pretoria |
| spellingShingle | UCTD Insurance policies Debt as a value creation tool in the short-term insurance industry |
| title | Debt as a value creation tool in the short-term insurance industry |
| title_full | Debt as a value creation tool in the short-term insurance industry |
| title_fullStr | Debt as a value creation tool in the short-term insurance industry |
| title_full_unstemmed | Debt as a value creation tool in the short-term insurance industry |
| title_short | Debt as a value creation tool in the short-term insurance industry |
| title_sort | debt as a value creation tool in the short term insurance industry |
| topic | UCTD Insurance policies |
| url | http://hdl.handle.net/2263/23140 http://upetd.up.ac.za/thesis/available/etd-03122010-155605/ |