European life insurance companies are important bond investors and had traditionally played a stabilizing role in financial markets by pursuing “buy-and-hold” investment strategies. However, since the onset of the ultra-low interest rates era in 2008, observers noted a decline in the credit quality of insurers’ bond portfolios. The commonly-held explanation for this deterioration is that low returns pushed insurers to become more risk-taking. We argue that other factors—such as surging rating downgrades, bond revaluations, and regulatory changes—also played a key role. We estimate that rating changes, revaluations, and search for yield each account for about one-third each of the total deterioration in credit quality. This result has important policy implications as it reestablishes the view that insurers’ investment behavior tends to be passive through the cycle—rather than risk-seeking.
Jyrki Ali-Yrkkö, Reda Cherif, Fuad Hasanov, Natalia Kuosmanen, and Mika Pajarinen
Do workers hired from superstar tech-firms contribute to better firm performance? To address this question, we analyze the effects of tacit knowledge spillovers from Nokia in the context of a quasi-natural experiment in Finland, the closure of Nokia’s mobile device division in 2014 and the massive labor movement it implied. We apply a two-stage difference-in-differences approach with heterogeneous treatment to estimate the causal effects of hiring former Nokia employees. Our results provide new evidence supporting the positive causal role of former Nokia workers on firm performance. The evidence of the positive spillovers on firms is particularly strong in terms of employment and value added.