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Abstract

This article examines the impact of board and finance committee characteristics on insurers' cash holdings using a sample of 1,454 U.S. stock property–liability insurer-year observations. We focus on the roles of independent board members and independent finance committee members. Our results suggest that independent board members allow managers to hold excess cash holdings to avoid underinvestment and play a monitoring role in managers' cash spending behavior in a regulated industry. The overall findings are consistent with the independent director responsibility hypothesis, which suggests that independent directors play a monitoring role in managers' cash spending behavior and avoiding underinvestment problems.