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Principal-principal-agency relationships and the role of external governance

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  • Damian Ward

    (Bradford University School of Management, Bradford, UK)

  • Igor Filatotchev

    (CASS Business School, London, UK)

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    Abstract

    This paper explores agency problems associated with mutual and joint stock organizational forms. It examines whether the independent mode of distribution acts as a governance factor that reduces principal-agent and principal-principal costs. By analyzing a 1990-1997 panel of life insurance companies this paper provides evidence that mutuals have higher principal-agent costs, but lower principal-principal costs, compared with stocks. Independent distribution mitigates both agency problems by reducing managerial expenses while safeguarding interests of policyholders. These relationships are positively moderated by product complexity and free cash flow. This is consistent with the assumption that companies that use independent agents exhibit lower levels of manager and shareholder opportunism. Copyright © 2009 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1473
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 31 (2010)
    Issue (Month): 4 ()
    Pages: 249-261

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    Handle: RePEc:wly:mgtdec:v:31:y:2010:i:4:p:249-261

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    Cited by:
    1. Massimo Colombo & Annalisa Croce & Samuele Murtinu, 2014. "Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms," Small Business Economics, Springer, vol. 42(2), pages 265-282, February.

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