Separation of Ownership and Management: Implications for Risk-Taking Behavior

Authors

  • Cassandra R. Cole,

    1. Cassandra R. Cole is Associate Professor and Waters Fellow in Risk Management and Insurance, College of Business, Florida State University, 821 Academic Way, P.O. Box 3061110, Tallahassee, FL 32306-1110; phone: 850-644-9283; e-mail: ccole@cob.fsu.edu. Enya He is Assistant Professor, College of Business, University of North Texas, Denton, TX 76203-5339; phone: 940-565-3060; e-mail: Enya.He@unt.edu. Kathleen A. McCullough is Associate Professor and State Farm Professor of Risk Management/Insurance, College of Business, Florida State University, Tallahassee, FL 32306; phone: 850-644-8358; e-mail: kmccullo@cob.fsu.edu. David W. Sommer is Charles E. Cheever Chair of Risk Management, Bill Greehey School of Business, St. Mary's University, San Antonio, TX 78228; phone: 210-431-8055; e-mail: dsommer@stmarytx.edu. This article was subject to double-blind peer review.
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  • Enya He,

    1. Cassandra R. Cole is Associate Professor and Waters Fellow in Risk Management and Insurance, College of Business, Florida State University, 821 Academic Way, P.O. Box 3061110, Tallahassee, FL 32306-1110; phone: 850-644-9283; e-mail: ccole@cob.fsu.edu. Enya He is Assistant Professor, College of Business, University of North Texas, Denton, TX 76203-5339; phone: 940-565-3060; e-mail: Enya.He@unt.edu. Kathleen A. McCullough is Associate Professor and State Farm Professor of Risk Management/Insurance, College of Business, Florida State University, Tallahassee, FL 32306; phone: 850-644-8358; e-mail: kmccullo@cob.fsu.edu. David W. Sommer is Charles E. Cheever Chair of Risk Management, Bill Greehey School of Business, St. Mary's University, San Antonio, TX 78228; phone: 210-431-8055; e-mail: dsommer@stmarytx.edu. This article was subject to double-blind peer review.
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  • Kathleen A. McCullough,

    1. Cassandra R. Cole is Associate Professor and Waters Fellow in Risk Management and Insurance, College of Business, Florida State University, 821 Academic Way, P.O. Box 3061110, Tallahassee, FL 32306-1110; phone: 850-644-9283; e-mail: ccole@cob.fsu.edu. Enya He is Assistant Professor, College of Business, University of North Texas, Denton, TX 76203-5339; phone: 940-565-3060; e-mail: Enya.He@unt.edu. Kathleen A. McCullough is Associate Professor and State Farm Professor of Risk Management/Insurance, College of Business, Florida State University, Tallahassee, FL 32306; phone: 850-644-8358; e-mail: kmccullo@cob.fsu.edu. David W. Sommer is Charles E. Cheever Chair of Risk Management, Bill Greehey School of Business, St. Mary's University, San Antonio, TX 78228; phone: 210-431-8055; e-mail: dsommer@stmarytx.edu. This article was subject to double-blind peer review.
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  • David W. Sommer

    1. Cassandra R. Cole is Associate Professor and Waters Fellow in Risk Management and Insurance, College of Business, Florida State University, 821 Academic Way, P.O. Box 3061110, Tallahassee, FL 32306-1110; phone: 850-644-9283; e-mail: ccole@cob.fsu.edu. Enya He is Assistant Professor, College of Business, University of North Texas, Denton, TX 76203-5339; phone: 940-565-3060; e-mail: Enya.He@unt.edu. Kathleen A. McCullough is Associate Professor and State Farm Professor of Risk Management/Insurance, College of Business, Florida State University, Tallahassee, FL 32306; phone: 850-644-8358; e-mail: kmccullo@cob.fsu.edu. David W. Sommer is Charles E. Cheever Chair of Risk Management, Bill Greehey School of Business, St. Mary's University, San Antonio, TX 78228; phone: 210-431-8055; e-mail: dsommer@stmarytx.edu. This article was subject to double-blind peer review.
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Abstract

Issues associated with the relation between the separation of ownership and management and risk-taking behavior have been considered in an array of studies, with varying results. Due to the wide variety of ownership structures present, the property–casualty insurance industry provides an excellent setting to test the conflicting hypotheses related to separation of ownership from management and risk taking behavior. Employing a large sample of property–liability insurance companies over the period of 1996–2004, we empirically test the alternative hypotheses regarding the implications of separation of ownership from management for firms’ risk taking behavior. The empirical tests include the ownership structures specified in prior research as well as a more detailed classification scheme. We find that each ownership structure is significantly different from every other ownership structure in terms of risk.

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