Incentives for Managing Accounting Information: Property-Liability Insurer Stock-Charter Conversions

Incentives to manage accounting information are examined within 63 property-liability insurance company conversions from mutual ownership to common stock charter. In the conversion process, policyholders' embedded equity claims must be valued. Since mutuals have no separately traded equity, acc...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of risk and insurance 2004-06, Vol.71 (2), p.213-251
Main Authors: Mayers, David, Smith, Clifford W.
Format: Article
Language:English
Subjects:
Accounting policies
Accounting procedures
Bond portfolios
Capital markets
Charter conversions
Charters
Common stock
Costs
Creative accounting
Criminal conversion
Efficiency
Equity
Executives
Financial management
Hypotheses
Incentives
Insurance commissioners
Insurance companies
Insurance management
Insurance premiums
Insurance regulation
Investment management companies
Liability insurance
Management accounting
Mathematical models
Mutual insurance companies
Policyholders
Property liability insurance
Property rights
Regulated industries
Regulation
Settlements & damages
Solvency
Statistical analysis
Stock rights
Valuation
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Incentives to manage accounting information are examined within 63 property-liability insurance company conversions from mutual ownership to common stock charter. In the conversion process, policyholders' embedded equity claims must be valued. Since mutuals have no separately traded equity, accounting numbers are a critical input in this valuation. Incentives for surplus management vary across firms; the strongest evidence of surplus management is observed among firms where the mutual's executives become the firm's principal stockholders following conversion. The evidence suggests that converting firms manage accounting information primarily by adjusting liabilities and selectively establishing investment losses-not by altering claims settlement policy.
ISSN:0022-4367
1539-6975
DOI:10.1111/j.0022-4367.2004.00087.x