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Organizational Structure and Performance: Evidence From the Nonlife Insurance Industry in Japan

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  • Gene C. Lai
  • Piman Limpaphayom

Abstract

This study examines the impact of organizational structure on firm performance, incentive problems, and financial decisions in the Japanese nonlife (property‐casualty) insurance industry. Stock companies that belong to one of six horizontal keiretsu groups have lower expenses and lower levels of free cash flow than independent stock and mutual insurance companies. Keiretsu insurers also have higher profitability and higher loss ratios than independent insurers. With a limited sample size, there is some evidence that mutual insurers have higher levels of free cash flows, higher investment incomes, and lower financial leverage than their stock counterparts. Overall, empirical evidence suggests that each structure has its own comparative advantage.

Suggested Citation

  • Gene C. Lai & Piman Limpaphayom, 2003. "Organizational Structure and Performance: Evidence From the Nonlife Insurance Industry in Japan," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(4), pages 735-757, December.
    • Handle: RePEc:bla:jrinsu:v:70:y:2003:i:4:p:735-757
    DOI: 10.1046/j.0022-4367.2003.00073.x
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    2. Yu, Chih-Ping, 2015. "Financial policies on firm performance: The U.S. insurance industry before and after the global financial crisis," Economic Modelling, Elsevier, vol. 51(C), pages 391-402.
    3. Ismail Elnihewi & Rapiah Mohamed, 2015. "Effect of Organisational Structure and Competition on Organisational Performance in Libyan Commercial Banks," Information Management and Business Review, AMH International, vol. 7(6), pages 50-55.
    4. Noriyoshi Yanase & Piman Limpaphayom, 2017. "Organization Structure And Corporate Demand For Reinsurance: The Case Of The Japanese Keiretsu," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 599-629, June.
    5. Andre P. Liebenberg & David W. Sommer, 2008. "Effects of Corporate Diversification: Evidence From the Property–Liability Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 893-919, December.
    6. Jeungbo Shim, 2017. "An Investigation Of Market Concentration And Financial Stability In Property–Liability Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 567-597, June.
    7. Jeungbo Shim, 2011. "Mergers & Acquisitions, Diversification and Performance in the U.S. Property-Liability Insurance Industry," Journal of Financial Services Research, Springer;Western Finance Association, vol. 39(3), pages 119-144, June.
    8. Miyashita, Hiroshi & 宮下, 洋 & Yoneyama, Takau & 米山, 高生 & Suzawa, Yoshihiko & 諏澤, 吉彦 & Tseng, Yaofen, 2011. "Efficiency Performance Of Japanese Non-Life Insurers And Their Portfolio Of Insurance Policies," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 45(1), pages 59-79, October.
    9. B. Elango & Yu‐Luen Ma & Nat Pope, 2008. "An Investigation Into the Diversification–Performance Relationship in the U.S. Property–Liability Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(3), pages 567-591, September.
    10. Augusto Felício, J. & Rodrigues, Ricardo, 2015. "Organizational factors and customers' motivation effect on insurance companies' performance," Journal of Business Research, Elsevier, vol. 68(7), pages 1622-1629.
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    12. Byeongyong Paul Choi, 2010. "The U.S. Property and Liability Insurance Industry: Firm Growth, Size, and Age," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 13(2), pages 207-224, September.
    13. Chang, Vincent Y.L., 2023. "Do InsurTech startups disrupt the insurance industry?," Finance Research Letters, Elsevier, vol. 57(C).
    14. Asai, Yoshihiro, 2019. "Why do small and medium enterprises (SMEs) demand property liability insurance?," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 298-304.
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    16. Sebsatiaan Lambalk & Frank Jan de Graaf, 2017. "Explaining the relationship between firm performance and corporate governance of Dutch non-life insurance companies: Dutch mutual and commercial companies compared," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 7(2), pages 197-231, April.
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    18. Yin Choo Yap, 2009. "The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 4(1), pages 1-29, November.
    19. Elango, B., 2009. "Minimizing effects of 'liability of foreignness': Response strategies of foreign firms in the United States," Journal of World Business, Elsevier, vol. 44(1), pages 51-62, January.
    20. Li‐Ying Huang & Yu‐Luen Ma & Nat Pope, 2012. "Foreign Ownership and Non‐Life Insurer Efficiency in the Japanese Marketplace," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 15(1), pages 57-88, March.
    21. Jin Lung Peng & Lih Ru Chen & Jennifer L. Wang & Larry Y. Tzeng, 2017. "Diversification Versus Strategic Focus: Evidence from Insurance Intermediaries in Taiwan," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(3), pages 530-555, July.
    22. Eling, Martin & Luhnen, Michael, 2010. "Efficiency in the international insurance industry: A cross-country comparison," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1497-1509, July.
    23. Sangyong Han & Kwangmin Jung, 2023. "CEO political orientation, risk taking, and firm performance: evidence from the U.S. property-liability insurance industry," Economics of Governance, Springer, vol. 24(1), pages 1-39, March.
    24. Licheng Jin & Gene Lai & Chia-Ling Ho, 2022. "An analysis of post-demutualisation in the property–liability insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(2), pages 279-320, April.

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