Agency Problems and the Corporate Charter

Posted: 12 Jul 2005

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

Abstract

Theory says that mutual and stock organizational forms have a comparative advantage in specific contracting dimensions. We examine corporate charter and bylaw provisions from a sample of insurance companies with incorporations spanning the 19th century. We find that charter and bylaw provisions differ in predictable ways across organizational forms. For example, mutual charters and bylaws are more likely than those of stock companies to include provisions restricting the company`s operating policies (because mutuals have higher costs of controlling management discretion). Our examination supports the proposition that incentive problems between owners and managers are more pronounced in mutuals. This implies an offsetting benefit, which we interpret as the internalization of owner-customer incentive conflict problems.

Suggested Citation

Mayers, David and Smith, Clifford W., Agency Problems and the Corporate Charter. The Journal of Law, Economics, and Organization, Vol. 21, No. 2, pp. 417-440, 2005. Available at SSRN: https://ssrn.com/abstract=754866

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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