The Student Honors Papers collection represent exemplary work in Business Administration at Illinois Wesleyan University. The Ames Library is proud to archive these and other honors projects in Digital Commons @ IWU, the University's online archive of student, faculty and staff scholarship and creative activity.
An Empirical Investigation of Poison Pill Use in the Banking Industry
by Zachary Hooper '07
This study examines the use of poison pill plans in the banking industry. This research demonstrates that the increasing number of banks adopting a poison pill plan is related to increasing market concentration. There are two hypotheses explaining the intent of these adoptions: (l) Managerial Entrenchment and (2) Shareholder Interest. This study specifically examined these hypotheses in the banking industry between 1986 and 2003. Results indicated that comparison banks not adopting a poison pill had a significant improvement in ROE the year after their peers adopted a poison pill. Additional results of this research contradict the popularly held belief that a poison pill plan provides a significant improvement in the probability of survival.
Risk Management through Derivatives Securitization
by Stefan Filip '07
With the fluctuations in the financial markets reaching tens ofbillions of dollars in just one day, using complex financial instruments instead oftypical insurance could be more effective and cheaper to finance high-severity and low frequency risk exposures. Insurance-linked derivatives such as catastrophes bonds and weather bonds have been used for some time in the United States and European Union. The risks that they cover vary from property catastrophes, weather, general liability, and extreme mortality risks. As the number ofissuers for these securities increases and new over-thecounter (OTC) products appear on the secondary markets there is a growing need to understand how they should be priced and considered by law. I intend to analyze the methods ofpricing as well as creating a model for a weather derivative for the Illinois com production and test its impact based on past statistical data
The Pricing Effects of European Union Insurance
by Andrew Heikes '06
Shifting from a government-controlled system ofmotor insurance regulation to a marketbased system has caused unexpected outcomes in Italy. Although there is more competition since deregulation occurred twelve years ago, the government has had mixed results attempting to continue to control the market. This paper will examine how pricing deregulation on the European Union level has caused significant changes in the Italian market. Furthermore, it will seek to develop a national solution for regulation ofauto insurance pricing within the United States using Italian experience. Regulation in the insurance industry in the United States has been a subject ofdebate for quite some time, and although there has been consensus among researchers on the need to change current regulations, agreement on changes to make has not been quite as simple. The recommendationofthisstudyisto implementasystem offederal supervision in pricing regulation, while allowing states to conduct day-to-day oversight.
Baseball and Its Anti-Trust Exemption
by Jason Korczak '04
Somewhere in small town America there is a group of young boys with an old tattered ball and a game tested Louisville Slugger playing a pick up game of baseball. It doesn't matter that there is no crowd cheering them on, or that none of the players have a uniform, or even that not one of them is being paid. All of these youngsters are playing simply for the love of the game. And this is how the majority of people in America view baseball, as a game that people play for fun and enjoyment. This is not the case however, with the select few that are talented enough to play baseball professionally. Their reasons for playing go further than their passion for the game; they also make a living by playing. So, to some, these rare athletic marvels could be said to view the game as a business. Just as in any other business, these workers are paid to perform a service and, since their craft is in high demand, some are paid well. These two contrasting situations, though, present a problem: should baseball be considered a game or a business? As a legal matter, that question was answered by the United States Supreme Court. And since the Court's 1922 decision, America's Pastime has never been the same. It is likely that Justice Oliver Wendell Holmes had no idea what sort of impact his ruling of baseball as an exhibition would have, but some eighty years later we are still feeling the ripples from this drop in the pond.
Attitudes and Intentions of Students Regarding Future Alumni Activity
by Amy K. Atwood '04
The Director of Alumni Relations at a small, liberal-arts university in the Midwest approached a university marketing professor about investigating student attitudes and intentions regarding future alumni activity. Information collected from preliminary focus groups helped in the creation of a attitudes and intentions survey given to 322 students. Results showed that students seemed knowledgeable about the fundraising needs of the university, but lacked sophistication about these needs. A targeted marketing campaign aimed at improving students' level of sophistication shows great potential for altering the apathetic attitudes some students have about donating back to their alma mater. Due to the lack of relevant literature on the topic and the serious need for increased funds at all universities, these results may aid university management in increasing finances from alumni.
Privatization in Lithuania: General Environment and Case Studies
by Ginte Sabaliauskaite '00
The crumble of the Soviet Union left Lithuania, like many of its former republics, at a standstill. With the demise of USSR came the demise of markets in the east and it became important for Lithuania to establish economic ties with the west. The first step in this direction is to privatize much of the public property so that it can be managed with a goal of profitability. The privatization of housing and small firms is very important, but the successful privatization of large enterprises plays a crucial role in the country's overall economic success. Profitability of a large enterprise affects directly the GDP, standards of living, distribution of income and unemployment in countries such as Lithuania which in size barely equal the state of Georgia. In this paper, I will attempt to demonstrate that successful privatization depends on the following four conditions: the competitiveness in international markets and existence of domestic markets, method of privatization, corruption issues, and the role of the IMF. Further, I will show the effects of these conditions specifically in the past privatization experiences of three such large firms in Lithuania. Lastly, I will measure the success of privatization in each firm based on the number of jobs created or saved, profitability of the firm, progress in modernization and investment in infrastructure.
by Ralph Wright '99
The objective of this research study was to determine the degree to which people use brand names to make purchase decisions. Further, we questioned what other influences -quality/price/previous buying experience -impacted the decision. This paper will demonstrate that a sample of college students in Central Illinois generally purchase based upon a product's brand name. More specifically, the research findings indicate that these consumers associate a high level of quality with specific brands of clothing.
Consumption Taxes: An Examination
by Joshua E. Richardson '97
The current in orne tax system fails to achieve several of these goals. This paper will examine three alternatives to the income tax: a national sales tax, a value added tax, and a personal expen iture tax. The three taxes create the same tax on an item of consumption through different methods. These options will be discussed in comparison to the current income tax on the basis of administrative efficiency, equity, economic consequences, and transitional difficulties.
Measuring Risk-Based Capital
by Karen Anderson '97
In order to assure policyholders that their benefits will be available when they are needed, the National Association ofInsurance Commissioners (NAIC) has begun regulating insurer capital through the Risk-Based Capital (RBC) Model Act for life insurance companies. The Model Act helps state insurance regulators plan to preserve and protect adequate insurance capital levels and maintain insurer solvency. The RBC requirements provide for a ratio which assesses the level of risk that is associated with an insurance company's assets. The purpose of the NAIC's RBC calculation is to develop the minimum amount of surplus needed given the risks assumed by the company. For example, the RBC model establishes a 30% risk factor for all unaffiliated common stock held by life insurance companies. This factor was established by using the S&P 500 as an indicator ofthe volatility ofthe stock market. However, questions arise regarding whether the S&P 500 is an accurate measure of the market risk associated with life insurer stock portfolios or whether another index would better reflect their risk. Therefore, after determining the market risk reflected by several different stock indexes and analyzing a sample of insurer stock portfolios, a discussion results about whether the RBC factor needs to be changed.
A Solution to the Shortage of Capital in the Property Insurance Industry
by Amy Gebauer '96
Due to the recent increase in the severity and frequency of natural catastrophes, insurers believe that insured losses from such catastrophes can exceed $50 billion. There is not enough capital available in the insurance industry to cover such catastrophic losses. Therefore, insurers have begun looking for new sources of capital. The most promising solution is in the capital market, specifically in catastrophe insurance options. The options have a settlement index, which is the market's estimate of the losses for the covered quarter. While these options have advantages as well as disadvantages over reinsurance. The main problem hindering the market is the lack of a generally accepted pricing model. Neither option pricing models nor reinsurance pricing methods are suitable for the severity of recent catastrophes. Since a pricing model would probably dramatically increase the popularity of catastrophe insurance options, the search for such a model is the source of great discussion in the insurance industry.