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

Posted: 9 Sep 1997

See all articles by David Mayers

David Mayers

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Clifford W. Smith

Simon Graduate School of Business, University of Rochester

Multiple version iconThere are 2 versions of this paper

Date Written: July 1997

Abstract

We examine incentives to manage accounting information within 63 property-liability insurance company conversions from mutual ownership to common stock charter. In the process of conversion, policyholders' embedded equity claims must be valued. Since mutuals have no separately traded equity, accounting numbers are an important input in this valuation. Our evidence suggests that converting firms manage accounting information to reduce surplus primarily by adjusting liabilities and realizing investment returns, not by changing underwriting activities. Within our sample, we find the strongest evidence of surplus management among firms where the mutual's executives become the firm's principal stockholders after conversion.

JEL Classification: G22, N41, M41

Suggested Citation

Mayers, David and Smith, Clifford W., Incentives for Managing Accounting Information: Property- Liability Insurer Stock-Charter Conversions (July 1997). Simon School of Business Working Paper FR 96-05. Available at SSRN: https://ssrn.com/abstract=10632

David Mayers

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States
909-787-3443 (Phone)
909-787-2933 (Fax)

Clifford W. Smith

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-202C
Rochester, NY 14627
United States
585-275-3217 (Phone)
585-442-6323 (Fax)

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