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

39 Pages Posted: 6 Jul 2004

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

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Abstract

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.

JEL Classification: M41, M43, G22, G24, G34

Suggested Citation

Mayers, David and Smith, Clifford W., Incentives for Managing Accounting Information: Property-Liability Insurer Stock-Charter Conversions. Journal of Risk and Insurance, Vol. 71, No. 2, pp. 213-251, June 2004. Available at SSRN: https://ssrn.com/abstract=541827

David Mayers (Contact Author)

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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