The Demise of the Mutual Organizational Form: An Investigation of the Life Insurance Industry

Journal of Money, Credit and Banking, Forthcoming

40 Pages Posted: 26 Feb 2010

See all articles by Otgontsetseg Erhemjamts

Otgontsetseg Erhemjamts

Bentley University - Department of Finance; Bentley University

J. Tyler Leverty

University of Wisconsin - Madison

Date Written: February 24, 2010

Abstract

We investigate the role of organizational structure in financial services markets by examining the U.S. life insurance industry. Traditionally stock and mutual life insurers were equally represented, but now the industry is mainly comprised of stock firms. We find operational efficiency, access to capital, and tax savings are important determinants for this shift. The incentive to demutualize differs by the type of conversion: full demutualization is chosen for efficiency and access to capital reasons and partial conversion, using a mutual holding company, is chosen for tax savings. Firm operational efficiency improves after conversion. We also find the efficiency of the stock organizational form dominates that of the mutual structure during our sample period, 1995 to 2004.

Keywords: Insurance, Organizational Form, Demutualization, Efficiency, Tax

JEL Classification: G2, G22, G34, L2

Suggested Citation

Erhemjamts, Otgontsetseg and Leverty, J. Tyler, The Demise of the Mutual Organizational Form: An Investigation of the Life Insurance Industry (February 24, 2010). Journal of Money, Credit and Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1558536 or http://dx.doi.org/10.2139/ssrn.1558536

Otgontsetseg Erhemjamts

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States
781-891-2823 (Phone)

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States
781-891-2823 (Phone)
781-891-2896 (Fax)

J. Tyler Leverty (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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