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Organizational Form, Ownership Structure, and Top Executive Turnover: Evidence from the Property-Casualty Insurance Industry. Jiang Cheng J. David Cummins Tzuting Lin 2012 NTUICF Meeting Dec. 06, 2012 Taipei. Introduction.

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Organizational Form, Ownership Structure, and Top Executive Turnover: Evidence from the Property-Casualty Insurance Industry

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Organizational form ownership structure and top executive turnover evidence from the property casualty insurance industry

Organizational Form, Ownership Structure, and Top Executive Turnover: Evidence from the Property-Casualty Insurance Industry

Jiang Cheng

J. David Cummins

Tzuting Lin

2012 NTUICF Meeting

Dec. 06, 2012 Taipei


Introduction

Introduction

  • Most previous studies on CEO turnover focus only on publicly-traded stock companies.

  • Why we study the U.S. property-casualty insurance industry?


Ceo turnover in publicly traded stocks

CEO Turnover in Publicly-Traded Stocks

  • The general consensus: negative relationship between firm performance and the likelihood of CEO turnover, especially non-routine turnover.

  • negative relationship between firm performance and an outside replacement

  • The magnitude of this relation, however, depends on the quality of corporate governance within the firm and outside market forces.


Publicly traded and closely held stocks

Publicly-Traded and Closely-Held Stocks

  • Publicly-traded stocks: monitoring from the capital market (e.g., financial analysts and institutional investors), the takeover market, and boards of directors.

  • Closely-held stocks: a limited number of shareholders ; familiar and involved in management (Nagar, Petroni, and Wolfenzon, 2011).


Family controlled stocks

Family-Controlled Stocks

  • Controlling family: (Anderson and Reeb, 2003; Li and Srinivasan, 2011)

  • Non-family-member CEOs and family member CEOs


Mutuals and reciprocals

Mutuals and Reciprocals

  • No traded shares and inalienability of ownership rights (Mayer and Smith, 1988)

  • Higher fraction of outside board members (Mayers, Shivdasani, Smith, 1997)


Hypothesis development

Hypothesis Development

  • Hypothesis 1: Mutuals have lower probability of CEO turnover and lower sensitivity of CEO turnover to firm performance than stocks.

  • Hypothesis 1-1: Mutuals have lower probability of CEO turnover and lower sensitivity of CEO turnover to firm performance than publicly-traded non-family-owned stocks.


Hypothesis development1

Hypothesis Development

  • Hypothesis 2: Closely-held non-family-owned stock insurers are less likely to remove the CEO when the firm is poorly performing than publicly-traded non-family-owned stocks.

  • Hypothesis 3: Among common stock insurance companies, family-member CEOs of a family firm have the lowest likelihood of non-routine turnover and lowest turnover-performance sensitivity.


Hypothesis development2

Hypothesis Development

  • Hypothesis 4-1: Compared to peers in non-family-controlled publicly-traded stock firms, a non-family CEO in a family-controlled publicly-traded stock firm is more likely to be removed.

  • Hypothesis 4-2: Compared to peers in non-family-controlled closely-held stock firms, a non-family CEO in a family-controlled closely-held stock firm is more likely to be removed.


Hypothesis development3

Hypothesis Development

  • Hypothesis 5: The likelihood of outside replacement is lower for mutuals than for publicly-traded non-family-controlled stock insurers.

  • Hypothesis 6: Closely-held stock non-family-controlled insurers are less likely to choose outside CEO successors than publicly-traded non-family-controlled stock insurers.


Hypothesis development4

Hypothesis Development

  • Hypothesis 7-1: Compared to peers in non-family-controlled publicly-traded stock firms, the incoming CEO successor in a family-controlled publicly-traded stock firm is more likely to be an outsider if the outgoing CEO is not a family member.

  • Hypothesis 7-2: Compared to peers in non-family-controlled publicly-traded stock firms, the incoming CEO successor in a family-controlled publicly-traded stock firm is less likely to be an outsider if the outgoing CEO is a family member.

  • Hypothesis 7-3: Compared to peers in non-family-controlled closely-held stock firms, the incoming CEO successor in a family-controlled closely-held stock firm is more likely to be an outsider if the outgoing CEO is not a family member.

  • Hypothesis 7-4: Compared to peers in non-family-controlled closely-held stock firms, the incoming CEO successor in a family-controlled closely-held stock firm is less likely to be an outsider if the outgoing CEO is a family member.


Sample selection

Sample Selection

  • A.M. Best’s Insurance Reports: Property/Casualty Edition

  • Proxy statements of the publicly-traded insurers

  • National Association of Insurance Commissioners (NAIC) annual statement database

  • 751 firms and 8,755 firm-years (1993-2006) hand-collected firm ownership structure, CEO turnover/succession and board information


Descriptive statistics

Descriptive Statistics


Descriptive statistics1

Descriptive Statistics


Regression results

Regression Results


Economic significance by ownership structure

Economic Significance by Ownership Structure


Evidence on successor choice

Evidence on Successor Choice


Conclusion

Conclusion

  • CEO turnover and succession patterns change with organization forms and ownership structures in the property-casualty insurance industry.


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