This paper explores agency problems associated with mutual and joint stock organizational forms. It examines whether the independent mode of distribution acts as a governance factor that reduces principal-agent and principal-principal costs. By analyzing a 1990-1997 panel of life insurance companies this paper provides evidence that mutuals have higher principal-agent costs, but lower principal-principal costs, compared with stocks. Independent distribution mitigates both agency problems by reducing managerial expenses while safeguarding interests of policyholders. These relationships are positively moderated by product complexity and free cash flow. This is consistent with the assumption that companies that use independent agents exhibit lower levels of manager and shareholder opportunism.
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