N.Y. Attorney General Eliot Spitzer and His Effect on the Insurance Industry: An Event Study

Abstract

On October 14, 2004, New York Attorney General Eliot Spitzer shook the entire insurance industry by filing a civil lawsuit against a group of insurance companies regarding their alleged price-fixing and bid-rigging. By using event study methodology, this study determines quantitatively the effects of Spitzer's announcement on a sample set of insurance companies as measured by their stock prices. If the announcement has a significant effect on the stock prices in the sample set, a specific dollar amount can be calculated as the cost of using these questionable practices in business. Results of this study show that there is a clear negative relationship between Spitzer's announcement and the stock prices in the insurance industry. We can conclude that unethical behavior caused by a conflict of interest is costly for firms in the insurance industry, and that those firms specifically charged by Spitzer in a civil suit or singled out to be subpoenaed have significantly larger losses than the industry as a whole.