Stock Versus Mutual Ownership Structures: The Risk Implications
TL;DR: In this paper, the authors provide empirical tests of the risk differences between two types of ownership structure in the property-liability insurance industry and provide empirical evidence that suggests stock insurers have more risk than mutuals where the risk inherent in future cash flows is proxied by the variance of the loss ratio.
Abstract: This article provides empirical tests of the risk differences between two types of ownership structure in the property-liability insurance industry. Empirical evidence is provided that suggests stock insurers have more risk than mutuals where the risk inherent in future cash flows is proxied by the variance of the loss ratio. Further evidence suggests that stock insurers write relatively more business than do mutuals in lines and states having higher risk. Copyright 1993 by University of Chicago Press.
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03 Jul 2006TL;DR: In this paper, the authors present a review of the major prohibitions of shari'a arbitrage in Islamic finance, including Riba and Gharar, and Derivative-like sales: Salam, Istisma, and Urbun.
Abstract: 1. Introduction 2. Jurisprudence and arbitrage 3. Two major prohibitions: Riba and Gharar 4. Sale-based Islamic finance 5. Derivative-like sales: Salam, Istisma' and 'Urbun 6. Leasing, securitization and Sukuk 7. Partnerships and equity investment 8. Islamic financial institutions 9. Governance and regulatory solutions in mutuality 10. Beyond Shari'a arbitrage Conclusion.
622 citations
TL;DR: In this paper, the authors examined the relationship between mergers and acquisitions, efficiency, and scale economies in the US life insurance industry and found that acquired firms achieve greater efficiency gains than firms that have not been involved in mergers or acquisitions.
Abstract: This paper examines the relationship between mergers and acquisitions, efficiency, and scale economies in the US life insurance industry. We estimate cost and revenue efficiency over the period 1988–1995 using data envelopment analysis (DEA). The Malmquist methodology is used to measure changes in efficiency over time. We find that acquired firms achieve greater efficiency gains than firms that have not been involved in mergers or acquisitions. Firms operating with non-decreasing returns to scale (NDRS) and financially vulnerable firms are more likely to be acquisition targets. Overall, mergers and acquisitions in the life insurance industry have had a beneficial effect on efficiency.
369 citations
TL;DR: In this paper, the authors measure cost efficiency and profit efficiency for property-liability insurers and find strong support for the product-quality hypothesis, implying that independent-agency insurers produce higher-quality outputs and are compensated by higher revenues.
Abstract: Property-liability insurance is distributed through a direct-writer system, where agents represent one insurer, and an independent-agency system, where agents represent several insurers. Independent-agency insurers have higher costs than direct writers. The market-imperfections hypothesis attributes the coexistence of the two types of insurers to impediments to competition, while the product-quality hypothesis holds that independent-agency insurers provide higher-quality services. The authors measure cost efficiency and profit efficiency for property-liability insurers and find strong support for the product-quality hypothesis, implying that independent-agency insurers produce higher-quality outputs and are compensated by higher revenues. Copyright 1997 by University of Chicago Press.
256 citations
Cites background from "Stock Versus Mutual Ownership Struc..."
...Service intensity is generally believed to be higher in the relatively complex commercial lines than in the more standardized personal lines, and commercial lines also may generate higher profits because they expose the insurer to greater risk (Lamm-Tennant and Starks, 1993)....
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TL;DR: In this paper, the authors examined the impact of an insurer's level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market.
Abstract: This article examines the impact of an insurer's level of insolvency risk on the prices the insurer obtains for its products in the property-liability insurance market. The measures of insolvency risk used are those implied by the option pricing model of insurance. The key finding is the existence of a negative relation between insolvency risk and insurance prices. This implies that property-liability insurers are penalized for default risk through lower prices, despite the existence of guaranty funds. Other firm-specific determinants of insurance prices are also identified. The results have significant implications for insurance researchers and regulators.
248 citations
TL;DR: In this paper, the role of outside directors in the corporate control process by exploiting variation in ownership structure within the insurance industry is investigated, and the authors find that mutuals employ more outside directors than stocks, and firms that switch between stock and mutual characters make corresponding changes in board composition.
Abstract: The authors investigate the role of outside directors in the corporate-control process by exploiting variation in ownership structure within the insurance industry. In mutuals, ownership rights are not transferable. This inalienability restricts the effectiveness of control mechanisms like external takeovers, thus increasing the importance of monitoring by outside directors. Consistent with this hypothesis, the authors find that mutuals employ more outside directors than stocks; firms that switch between stock and mutual characters make corresponding changes in board composition; mutuals' bylaws more frequently stipulate participation by outside directors; and mutuals with more outside directors make lower expenditures on salaries, wages, and rent. Copyright 1997 by University of Chicago Press.
231 citations
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TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
49,666 citations
TL;DR: In this paper, it is shown that a definition of a firm may be obtained which is not only realistic in that it corresponds to what is meant by a firm in the real world, but is tractable by two of the most powerful instruments of economic analysis developed by Marshall, the idea of the margin and that of substitution.
Abstract: Economic theory has suffered in the past from a failure to state clearly its assumptions. Economists in building up a theory have often omitted to examine the foundations on which it was erected. This examination is, however, essential not only to prevent the misunderstanding and needless controversy which arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgement in choosing between rival sets of assumptions. For instance, it is suggested that the use of the word “firm” in economics may be different from the use of the term by the “plain man.”1 Since there is apparently a trend in economic theory towards starting analysis with the individual firm and not with the industry,2 it is all the more necessary not only that a clear definition of the word “firm” should be given but that its difference from a firm in the “real world,” if it exists, should be made clear. Mrs. Robinson has said that “the two questions to be asked of a set of assumptions in economics are: Are they tractable? and: Do they correspond with the real world?”3 Though, as Mrs. Robinson points out, “more often one set will be manageable and the other realistic,” yet there may well be branches of theory where assumptions may be both manageable and realistic. It is hoped to show in the following paper that a definition of a firm may be obtained which is not only realistic in that it corresponds to what is meant by a firm in the real world, but is tractable by two of the most powerful instruments of economic analysis developed by Marshall, the idea of the margin and that of substitution, together giving the idea of substitution at the margin.
21,195 citations
TL;DR: The authors argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. But they do not consider the role of decision agents in these organizations.
Abstract: ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of
14,045 citations
TL;DR: In this paper, the authors argue that the structure of corporate ownership varies systematically in ways that are consistent with value maximization, and they find no significant relationship between ownership concentration and accounting profit rates for a set of firms.
Abstract: This paper argues that the structure of corporate ownership varies systematically in ways that are consistent with value maximization. Among the variables that are empirically significant in explaining the variation in ownership structure for 511 U.S. corporations are firm size, instability of profit rate, whether or not the firm is a regulated utility or financial institution, and whether or not the firm is in the mass media or sports industry. Doubt is cast on the Berle-Means thesis, as no significant relationship is found between ownership concentration and accounting profit rates for this set of firms.
6,551 citations
TL;DR: Jensen and Fama as mentioned in this paper developed a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems and explained the survival of organizational forms in specific activities.
Abstract: Social and economic activities, like religion, entertainment, education, research, and the production of other goods and services, are carried on by different types of organizations, for example, corporations, proprietorships, partnerships, mutuals and nonprofits. There is competition among organizational forms for survival. The form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs. The characteristics of residual claims are important both in distinguishing organizations from one another and in explaining the survival of organizational forms in specific activities. This paper develops a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems. © M. C. Jensen and E. F. Fama, 1983 Michael C. Jensen, Foundations of Organizational Strategy Chapter 6, Harvard University Press, 1998. Journal of Law & Economics, Vol XXVI (June 1983) This document is available on the Social Science Research Network (SSRN) Electronic Library at: http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=94032 AGENCY PROBLEMS AND RESIDUAL CLAIMS
3,594 citations