IDEAS home Printed from https://ideas.repec.org/a/bpj/apjrin/v2y2008i2n6.html
   My bibliography  Save this article

Effort Allocation of Insurance Agent under Asymmetric Information: An Analytical Approach

Author

Listed:
  • Kojima Koji

    (Kwansei Gakuin University, Japan)

  • Okura Mahito

    (Nagasaki University, Japan)

Abstract

This study examines the relationship between incentive contracts for managers and the allocation of efforts by the managers as well as the stock market's role in monitoring allocation of the efforts. It also evaluates solvency regulation in Japan and its effects on the compensation of a manager and allocation of the manager's efforts and on the shareholders' profits in a market with asymmetric information. Particularly, we employ a principal-agency model to demonstrate how uncertainty in the insurance market affects the way managers allocate their efforts so that their companies can achieve a higher solvency ratio in order to meet not only regulatory requirements but also stock market expectation. We find presence of a solvency margin ratio that, subject to certain conditions, increases the level of "good" effort, decreases the level of "bad" effort by the manager and increases the expected stock price.

Suggested Citation

  • Kojima Koji & Okura Mahito, 2008. "Effort Allocation of Insurance Agent under Asymmetric Information: An Analytical Approach," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 2(2), pages 1-20, March.
    • Handle: RePEc:bpj:apjrin:v:2:y:2008:i:2:n:6
    DOI: 10.2202/2153-3792.1023
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/2153-3792.1023
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/2153-3792.1023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Diamond, Douglas W & Verrecchia, Robert E, 1982. "Optimal Managerial Contracts and Equilibrium Security Prices," Journal of Finance, American Finance Association, vol. 37(2), pages 275-287, May.
    2. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 678-709, August.
    3. Narayanan, V. G. & Davila, Antonio, 1998. "Using delegation and control systems to mitigate the trade-off between the performance-evaluation and belief-revision uses of accounting signals," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 255-282, June.
    4. 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.
    5. Ballotta, Laura & Esposito, Giorgia & Haberman, Steven, 2006. "The IASB Insurance Project for life insurance contracts: Impact on reserving methods and solvency requirements," Insurance: Mathematics and Economics, Elsevier, vol. 39(3), pages 356-375, December.
    6. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    7. Lambert, Richard A., 2001. "Contracting theory and accounting," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 3-87, December.
    8. Iskandar Hamwi & Tim Hudson & Yueyun Chen, 2004. "Solvency regulation in the property-liability insurance industry," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(4), pages 313-327, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mahito Okura, 2013. "The relationship between moral hazard and insurance fraud," Journal of Risk Finance, Emerald Group Publishing, vol. 14(2), pages 120-128, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    2. Parmendra Sharma & Eduardo Roca, 2011. "Reâ Designing Financial Systems: A Review of the Role of Stock Markets in Developing Economies," Discussion Papers in Finance finance:201120, Griffith University, Department of Accounting, Finance and Economics.
    3. repec:rnp:ppaper:mn38 is not listed on IDEAS
    4. Rym Ayadi & Emrah Arbak & Willem Pieter De Groen, 2012. "Executive Compensation and Risk-taking in European Banking," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 8, Edward Elgar Publishing.
    5. Mu-Shun Wang & Shaio Yan Huang & An An Chiu, 2011. "Liquidity, Management Effort And Performance," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 5(1), pages 1-14.
    6. Chaigneau, Pierre, 2010. "The optimal timing of executive compensation," LSE Research Online Documents on Economics 119081, London School of Economics and Political Science, LSE Library.
    7. Roberta Dessí, 2001. "Implicit Contracts, Managerial Incentives, and Financial Structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 359-390, September.
    8. Romec, Arthur, 2023. "Stakeholder orientation and managerial incentives: Evidence from a natural experiment," International Review of Financial Analysis, Elsevier, vol. 88(C).
    9. Wang, Qiong & Qiu, Muqing, 2023. "Strength in numbers: Minority shareholders' participation and executives' pay-performance sensitivity," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    10. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    11. Grant, Simon & King, Stephen & Polak, Ben, 1996. "Information Externalities, Share-Price Based Incentives and Managerial Behaviour," Journal of Economic Surveys, Wiley Blackwell, vol. 10(1), pages 1-21, March.
    12. Liu, Cai & Yin, Chao, 2023. "Institutional investors’ monitoring attention, CEO compensation, and relative performance evaluation," Finance Research Letters, Elsevier, vol. 56(C).
    13. Nanda, Vikram & Onal, Bunyamin, 2016. "Incentive contracting when boards have related industry expertise," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 1-22.
    14. Axel H. Boersch-Supan & Joachim K. Winter, 2001. "Population Aging, Savings Behavior and Capital Markets," NBER Working Papers 8561, National Bureau of Economic Research, Inc.
    15. Chen, Chao-Jung & Hsu, Chung-Yuan & Chen, Yu-Lin, 2014. "The impact of family control on the top management compensation mix and incentive orientation," International Review of Economics & Finance, Elsevier, vol. 32(C), pages 29-46.
    16. Gao, Huasheng & Li, Kai, 2015. "A comparison of CEO pay–performance sensitivity in privately-held and public firms," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 370-388.
    17. Butzbach, Olivier & Di Carlo, Ferdinando, 2008. "The effects of stock options accounting regulation on corporate governance: A comparative European study," MPRA Paper 14843, University Library of Munich, Germany.
    18. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    19. Biddle, Gary C. & Hilary, Gilles & Verdi, Rodrigo S., 2009. "How does financial reporting quality relate to investment efficiency?," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 112-131, December.
    20. Zimmermann, Heinz & Beiner, Stefan & Drobetz, Wolfgang & Schmid, Markus, 2004. "Corporate Governance, Unternehmensbewertung und Wettbewerb : eine Untersuchung für die Schweiz," Working papers 2004/01, Faculty of Business and Economics - University of Basel.
    21. Patrick Bolton & Hamid Mehran & Joel Shapiro, 2015. "Executive Compensation and Risk Taking," Review of Finance, European Finance Association, vol. 19(6), pages 2139-2181.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:2:y:2008:i:2:n:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.