TITLE
"Is the One-Time Accounting Charge Really Trivial?--Evidence from the Insurance Industry," Journal of Insurance Issues, Mulong Wang, Chuanhou Yang, and Hong Zou, Fall 2004, Vol. 27, No. 2, pp. 160-180. Full-text articles soon will be available through ABI/INFORM and EBSCO; click here for article PDF.

ABSTRACT
Motivated by the increasing use of one-time charges in the US insurance industry, this paper examines the information content of explicit announcements of such charges in the US insurance industry over the period 1990 to 2001. We find that, as expected, market reaction tends to vary according to the nature of one-time charges. Specifically, we observe a positive market response to one-time charges due to business restructure and lawsuit settlement, but a negative reaction to charges arising from accounting policy change, increasing loss reserve and acquiring other firms. These results are largely consistent with evidence obtained from the general corporate sectors. Additional regression analysis confirms a significant correlation between the magnitude of abnormal returns and the (relative) amount of one-time charges. When more companies are being charged for misleading financial statements, our results provide important insights to industry regulators, company managers, and investors.

[Key words: one-time charge, regulation, market sensitivity]