The Impact of Captive Insurer Formation on the Parent Firm's Value

This study tests the effect of the formation of pure captive insurers on the stock returns of their non-insurance parent corporations. Test results indicate that captive formation impacts the security returns of the parent corporations over a time interval from 25 days before the date of captive formation to 30 days after that formation date. Over this time interval, the parent corporations' stock returns demonstrate a positive reaction to captive formation.