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Demutualizations and Free Cash Flows

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  • C. Steven Cole
  • Michael J. McNamara
  • Brenda P. Wells
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    Abstract

    This article examines undistributed cash flow before and after life insurance company demutualizations. Theory argues that free cash flow should be lower on a relative basis under the stock form of organization as the incentives, control, and bond opportunities are greater than under the mutual form of organization. The empirical results show a significant reduction in relative and undistributed cash flow after life insurers convert from the mutual to the stock form of organization. The evidence supports the contention that stock insurers are more effective in reducing the agency costs of equity than are mutual insurers.

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    Bibliographic Info

    Article provided by Western Risk and Insurance Association in its journal Journal of Insurance Issues.

    Volume (Year): 18 (1995)
    Issue (Month): 1 ()
    Pages: 37-56

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    Handle: RePEc:wri:journl:v:18:y:1995:i:1:p:37-56

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