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Separation of Ownership and Control: Implications for Board Composition
Author(s) -
He Enya,
Sommer David W.
Publication year - 2010
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2010.01351.x
Subject(s) - separation (statistics) , business , control (management) , liability , agency (philosophy) , agency cost , principal–agent problem , accounting , actuarial science , corporate governance , finance , economics , shareholder , management , philosophy , epistemology , machine learning , computer science
This article investigates the implications of separation of ownership and control for board composition over a spectrum of ownership structures present in the U.S. property–liability insurance industry. We hypothesize that agency costs associated with manager–owner conflicts increase with the degree of separation of ownership and control. Greater agency costs imply a greater need for monitoring by outside directors on the board. Therefore, use of outside directors is expected to increase as the separation of ownership and control gets larger. Employing a sample of property–liability insurers exhibiting different degrees of separation of ownership and control, we find support for our hypothesis.