Board characteristics and life insurance efficiency in South Africa

Abdul Latif Alhassan · Mary-Ann Afua Boakye

21 citations0/0 files storedPacific Accounting Review

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Corporate Finance and Governance Insurance and Financial Risk Management Efficiency Analysis Using DEA

Abstract

Purpose In their role as monitors and advisors, boards are expected to address agency conflicts associated with the separation of ownership from control in large corporations. The ability to effectively perform these functions and enhance corporate outcomes largely depends on their influence in decision-making. This paper aims to examine the effect of corporate governance attributes, in the form of board characteristics, on technical efficiency in the South African life insurance industry. Design/methodology/approach Using the two-stage data envelopment analysis technique, bootstrapped efficiency scores are estimated for 73 insurers from 2007 to 2014 in Stage 1. The truncated bootstrapping procedure of Simar and Wilson (2007) and the tobit estimation techniques are used to examine the effect of corporate governance characteristics and other insurer level attributes on technical efficiency scores in Stage 2 analysis. Findings The findings suggest that life insurers operate with high levels of inefficiency within a highly independent governance structure. The results from Stage 2 analysis identifies audit committee size and independence to improve efficiency while board independence is found to be detrimental to efficiency. Practical implications The findings provide a useful reference point for insurance regulators in developing economies in the formulation of an effective governance mechanism for the efficient operation of the insurance industry. Originality/value As far as the authors are concerned, the analysis contained in this paper presents the first empirical assessment of the corporate governance structure and its effects on corporate outcomes in an African insurance market.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1978Measuring the efficiency of decision making units 1983Separation of Ownership and Control 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1957The Measurement of Productive Efficiency 1996Agency costs of free cash flow, corporate finance, and takeovers 1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1996Higher market valuation of companies with a small board of directors

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2021Board characteristics and financial performance in the insurance industry: An international empirical survey

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