Table 1 Relevant insurance motives...

Table 1

Relevant insurance motives regarding financial benefits, agency problems and organizational characteristics for large enterprises vs SMEs

	Findings for large organizations	Findings for SMEs
Financial aspects	• Insurance can reduce the transaction costs of bankruptcy (e.g. [1], [3], [4], [9]) • Purchasing insurance depends on the financial situation (e.g. the capitalization, debt capacity, cost of distress, cash availability, capital market access) of the enterprise (e.g. [5], [6], [8], [9], [12]) • Insurance is purchased to achieve earnings stability (e.g. [7]) • Insurance is purchased to reduce taxable income and expected tax liabilities (e.g. [1],[4], [9]) – other results found by [7] and [10]. The German tax system offers limited opportunities to reduce the tax burden through insurance [8]	• Expected bankruptcy costs are less than proportional to firm size, making insurance more valuable for smaller firms (e.g. [1], [5], [9]) – opposing results found by [16]: SMEs with a higher probability of bankruptcy purchase less insurance, probably because riskier SMEs cannot afford to buy insurance • Price-sensitive SMEs purchase less business interruption insurance [17] • Smaller firms purchase insurance to protect equity [8] • Tax incentives have been shown to be a motive for purchasing insurance among Japanese SMEs [16]
Agency problems/information asymmetries	Between bondholders and shareholders Differing interests between debtholders and shareholders can lead to an underinvestment problem. By requiring insurance, debtholders limit a firm’s risk to a certain level while reducing the agency costs of monitoring the behavior of the equity holders and increasing firm value (e.g. [2], [3], [4], [12]) – other results found by [7] Between management and shareholders Insurers have a comparative advantage in monitoring risk-reducing decisions made by management for shareholders [1], with the degree of risk aversion of managers depending on the extent to which compensation is linked to performance (e.g. [4], [6], [13]) Relationship with others • Insurance is motivated by competition and can facilitate cooperation and coordination (e.g. [14]) • Insurance can act as a signal of firm quality – greater levels of coverage signal higher expected cash flows (e.g. [7], [15])	Between bondholders and shareholders • Insurance could be used to strengthen the existing relationship: insurance demand within private firms is motivated by increasing the organization’s debt capacity [18] due to the high importance of bank borrowings (which are the main sources of financing) for SMEs. Those facing financial constraints due to weak relationships with their banks tend to have a higher insurance demand [16] • Insurance is often purchased by SMEs at the request of banks [16] Between management and shareholders In SMEs, a separation between ownership and management is often not possible (e.g. [8],[16]). Therefore, the risk management motives of owners and managers are much more aligned [18]: the owners of closely held organizations have greater control over management behavior than those of widely held organizations [8]
Organizational aspects	Ownership structure Corporations purchase less insurance than closely held firms with concentrated ownership (e.g. [1], [6], [8], [11]) – other results found by [9] and [10] Organizational size Smaller enterprises purchase more insurance than larger organizations (e.g. [1], [4], [8], [9], [10], [11]) – other results found by [6] Industry • Regulated firms purchase more insurance than unregulated firms (e.g. [1], [6], [9], [10]) – other results by [4] • Firms from industries where higher operating revenues are associated with a higher insurance risk purchase insurance (e.g. [15]) Other characteristics • Organizations with greater growth opportunities purchase more directors’ and officers’ (D&O) insurance to improve management decision-making and avoid underinvestment (e.g. [6]) • Firms with greater internal risk diversification (e.g. technological) require less insurance (e.g. [8]) • Insurance is purchased due to comparative advantages in risk bearing and the real service efficiencies of the insurer (e.g. [1], [4], [7], [8], [9])	Ownership structure For SMEs a negative relation between ownership concentration and insurance demand and a positive one between the number of family owners and insurance demand has been identified [18] – other results found by [16]: the importance of financial benefits as an insurance motive varies with the ownership structure Organizational size Smaller SMEs purchase less insurance than larger ones (e.g. [16], [17]) Industry Organizations in trading and manufacturing industries purchase more business interruption insurance [17] Other characteristics Growth potential is not significantly related to insurance demand in SMEs, probably because SMEs with growth expectations do not have sufficient financial resources to purchase insurance [16]

	Findings for large organizations	Findings for SMEs
Financial aspects	• Insurance can reduce the transaction costs of bankruptcy (e.g. [1], [3], [4], [9]) • Purchasing insurance depends on the financial situation (e.g. the capitalization, debt capacity, cost of distress, cash availability, capital market access) of the enterprise (e.g. [5], [6], [8], [9], [12]) • Insurance is purchased to achieve earnings stability (e.g. [7]) • Insurance is purchased to reduce taxable income and expected tax liabilities (e.g. [1],[4], [9]) – other results found by [7] and [10]. The German tax system offers limited opportunities to reduce the tax burden through insurance [8]	• Expected bankruptcy costs are less than proportional to firm size, making insurance more valuable for smaller firms (e.g. [1], [5], [9]) – opposing results found by [16]: SMEs with a higher probability of bankruptcy purchase less insurance, probably because riskier SMEs cannot afford to buy insurance • Price-sensitive SMEs purchase less business interruption insurance [17] • Smaller firms purchase insurance to protect equity [8] • Tax incentives have been shown to be a motive for purchasing insurance among Japanese SMEs [16]
Agency problems/information asymmetries	Between bondholders and shareholdersDiffering interests between debtholders and shareholders can lead to an underinvestment problem. By requiring insurance, debtholders limit a firm’s risk to a certain level while reducing the agency costs of monitoring the behavior of the equity holders and increasing firm value (e.g. [2], [3], [4], [12]) – other results found by [7]Between management and shareholdersInsurers have a comparative advantage in monitoring risk-reducing decisions made by management for shareholders [1], with the degree of risk aversion of managers depending on the extent to which compensation is linked to performance (e.g. [4], [6], [13])Relationship with others• Insurance is motivated by competition and can facilitate cooperation and coordination (e.g. [14]) • Insurance can act as a signal of firm quality – greater levels of coverage signal higher expected cash flows (e.g. [7], [15])	Between bondholders and shareholders• Insurance could be used to strengthen the existing relationship: insurance demand within private firms is motivated by increasing the organization’s debt capacity [18] due to the high importance of bank borrowings (which are the main sources of financing) for SMEs. Those facing financial constraints due to weak relationships with their banks tend to have a higher insurance demand [16] • Insurance is often purchased by SMEs at the request of banks [16] Between management and shareholdersIn SMEs, a separation between ownership and management is often not possible (e.g. [8],[16]). Therefore, the risk management motives of owners and managers are much more aligned [18]: the owners of closely held organizations have greater control over management behavior than those of widely held organizations [8]
Organizational aspects	Ownership structureCorporations purchase less insurance than closely held firms with concentrated ownership (e.g. [1], [6], [8], [11]) – other results found by [9] and [10]Organizational sizeSmaller enterprises purchase more insurance than larger organizations (e.g. [1], [4], [8], [9], [10], [11]) – other results found by [6]Industry• Regulated firms purchase more insurance than unregulated firms (e.g. [1], [6], [9], [10]) – other results by [4] • Firms from industries where higher operating revenues are associated with a higher insurance risk purchase insurance (e.g. [15]) Other characteristics• Organizations with greater growth opportunities purchase more directors’ and officers’ (D&O) insurance to improve management decision-making and avoid underinvestment (e.g. [6]) • Firms with greater internal risk diversification (e.g. technological) require less insurance (e.g. [8]) • Insurance is purchased due to comparative advantages in risk bearing and the real service efficiencies of the insurer (e.g. [1], [4], [7], [8], [9])	Ownership structureFor SMEs a negative relation between ownership concentration and insurance demand and a positive one between the number of family owners and insurance demand has been identified [18] – other results found by [16]: the importance of financial benefits as an insurance motive varies with the ownership structureOrganizational sizeSmaller SMEs purchase less insurance than larger ones (e.g. [16], [17])IndustryOrganizations in trading and manufacturing industries purchase more business interruption insurance [17]Other characteristicsGrowth potential is not significantly related to insurance demand in SMEs, probably because SMEs with growth expectations do not have sufficient financial resources to purchase insurance [16]

Note(s): [1] Mayers and Smith (1982), [2] Mayers and Smith (1987), [3] MacMinn (1987), [4] Hoyt and Khang (2000), [5] Aunon-Nerin and Ehling (2008), [6] Core (1997), [7] Main (1983), [8] Krummaker (2019), [9] Regan and Hur (2007), [10] Yamori (1999), [11] Krummaker and Graf von der Schulenburg (2008), [12] Davidson et al. (1992), [13] Han (1996), [14] Ashby and Diacon (1998), [15] Grace and Rebello (1993), [16] Asai (2019), [17] Hoppe et al. (2017), [18] Ehling (2013)

Source(s): Authors own creation

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