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Can Independent Distribution Function as a Mode of Corporate Governance?: An Examination of the UK Life Insurance Market

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  • Damian Ward

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    Abstract

    This paper examines whether independent modesof distribution can act as effective externalmonitors of managerial action. Becauseindependent agents are owners of the clientlist, control of an essential cash-generatingasset is concentrated in the hands of informedpurchasers. A consequence of this concentrationis the ability of independent agents tochastise bad management by moving customers toalternative management teams. Therefore,insurance companies that use independent agentsshould exhibit lower levels of opportunisticbehaviour. By studying 42 UK life insurancecompanies over the period 1990–1997 this studyprovides evidence that independent agents doreduce life companies' free cash flow,managerial expenses and shareholder dividends,while increasing policyholders' reserves. Copyright Kluwer Academic Publishers 2003

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    File URL: http://hdl.handle.net/10.1023/A:1026237430362
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Management and Governance.

    Volume (Year): 7 (2003)
    Issue (Month): 4 (December)
    Pages: 361-384

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    Handle: RePEc:kap:jmgtgv:v:7:y:2003:i:4:p:361-384

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    Web page: http://www.springerlink.com/link.asp?id=102940

    Related research

    Keywords: corporate governance; distribution systems; insurance;

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    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Paul L. Joskow, 1973. "Cartels, Competition and Regulation in the Property-Liability Insurance Industry," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 375-427, Autumn.
    3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
    4. Mayers, David & Smith, Clifford W, Jr, 1981. "Contractual Provisions, Organizational Structure, and Conflict Control in Insurance Markets," The Journal of Business, University of Chicago Press, vol. 54(3), pages 407-34, July.
    5. Ingham, Hilary & Thompson, Steve, 1995. "Mutuality, Performance and Executive Compensation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 295-308, August.
    6. Steve Thompson, 1999. "Increasingly Marginal Utilities: Diversification and Free Cash Flow in Newly Privatized UK Utilities," Review of Industrial Organization, Springer, vol. 15(1), pages 25-42, August.
    7. Lehn, Kenneth & Poulsen, Annette, 1989. " Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-87, July.
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    Cited by:
    1. Damian Ward & Igor Filatotchev, 2010. "Principal-principal-agency relationships and the role of external governance," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 249-261.
    2. Martina Eckardt & Solvig Räthke-Döppner, 2010. "The Quality of Insurance Intermediary Services-Empirical Evidence for Germany," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(3), pages 667-701.

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