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

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 Indu

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  1. 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

  2. Introduction • Most previous studies on CEO turnover focus only on publicly-traded stock companies. • Why we study the U.S. property-casualty insurance industry?

  3. 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.

  4. 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).

  5. Family-Controlled Stocks • Controlling family: (Anderson and Reeb, 2003; Li and Srinivasan, 2011) • Non-family-member CEOs and family member CEOs

  6. 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)

  7. 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.

  8. 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.

  9. 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.

  10. 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.

  11. 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.

  12. 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

  13. Descriptive Statistics

  14. Descriptive Statistics

  15. Regression Results

  16. Economic Significance by Ownership Structure

  17. Evidence on Successor Choice

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

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