International Journal of Business and Economics Volume 22, No. 2 September, 2023

Impact of Insurance Coverage on Bank Financing and the Cost of Debt

Amarjit Gill

Edwards School of Business, University of Saskatchewan, Canada

Harvinder S. Mand

University College Dhuri, India

Neil Mathur

Walden University, Minneapolis, MN, USA

Abstract

This study tested the impact of commercial insurance coverage (CIC) and life insurance coverage (LIC) on bank financing (B_FIN) and the cost of debt (INT) for small business enterprises (SBEs) in India. We used a survey research design to collect data from SBE owners. This study used logistic regression, ordinary least square regression, and a three-stage least square (3SLS) regression to analyze data. Empirical analysis shows that CIC and LIC increase access to B_FIN and decrease INT. The results also suggest that insurance coverage increases cognitive, regulatory, and normative legitimacies in the eyes of lenders. In particular, CIC and LIC increase the probability of B_FIN by 53.11% and 74.02%, respectively. Besides, CIC and LIC increase the chances of decreasing INT by 4.40% and 6.60%, respectively, for SBEs in India. In addition, B_FIN increases the chances of a decrease in INT by 57.90%. The empirical analysis contributes to the literature on the impact of insurance coverage on B_FIN and INT. The findings can help scholars develop further studies in insurance coverage, B_FIN, and INT areas. Empirical results may help SBE owners improve access to B_FIN and reduce INT. Additionally, SBE management consultants may find the empirical results helpful in providing consulting services.

Keywords：Commercial insurance, Life insurance, Bank financing, Cost of debt, India

JEL Classifications： G30, G32, G40

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