Separation of Ownership and Control: Implications for Board Composition

摘要

This article investigates the implications of separation of ownership and control for board composition over a spectrum of ownership structures present in the U.S. property-liability insurance industry. We hypothesize that agency costs associated with manager-owner conflicts increase with the degree of separation of ownership and control. Greater agency costs imply a greater need for monitoring by outside directors on the board. Therefore, use of outside directors is expected to increase as the separation of ownership and control gets larger. Employing a sample of property-liability insurers exhibiting different degrees of separation of ownership and control, we find support for our hypothesis.