Principal-principal-agency relationships and the role of external governance

Damian Ward and Igor Filatotchev
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Damian Ward: Bradford University School of Management, Bradford, UK, Postal: Bradford University School of Management, Bradford, UK
Igor Filatotchev: CASS Business School, London, UK, Postal: CASS Business School, London, UK

Managerial and Decision Economics, 2010, vol. 31, issue 4, 249-261

Abstract: This paper explores agency problems associated with mutual and joint stock organizational forms. It examines whether the independent mode of distribution acts as a governance factor that reduces principal-agent and principal-principal costs. By analyzing a 1990-1997 panel of life insurance companies this paper provides evidence that mutuals have higher principal-agent costs, but lower principal-principal costs, compared with stocks. Independent distribution mitigates both agency problems by reducing managerial expenses while safeguarding interests of policyholders. These relationships are positively moderated by product complexity and free cash flow. This is consistent with the assumption that companies that use independent agents exhibit lower levels of manager and shareholder opportunism. Copyright © 2009 John Wiley & Sons, Ltd.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:31:y:2010:i:4:p:249-261

DOI: 10.1002/mde.1473

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