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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

Jiang Cheng

J. David Cummins

Tzuting Lin

2012 NTUICF Meeting

Dec. 06, 2012 Taipei


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

  • 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 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

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

  • Non-family-member CEOs and family member CEOs


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 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 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 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 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 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

  • 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


Regression Results


Economic Significance by Ownership Structure


Evidence on Successor Choice


Conclusion

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


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