Corporate governance, firm performance and efficiency: three empirical analyses of the UK ...

259 Pages·2017·1.96 MB·English

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UNIVERSITY OF SOUTHAMPTON
FACULTY OF BUSINESS, LAW AND ART
Southampton Business School

Corporate Governance, Firm Performance and Efficiency:
Three Empirical Analyses of the UK Insurance Industry

by

Tony Abdoush

Thesis for the degree of Doctor of Philosophy

January 2017

UNIVERSITY OF SOUTHAMPTON
ABSTRACT
FACULTY OF BUSINESS, LAW AND ART
Southampton Business School
Thesis for the degree of Doctor of Philosophy
CORPORATE GOVERNANCE, FIRM PERFORMANCE AND EFFICIENCY: THREE
EMPIRICAL ANALYSES OF THE UK INSURANCE INDUSTRY
Tony Sameer Abdoush

The purpose of this thesis is to investigate the impact of corporate governance and distribution
strategies on firm performance, following the regulatory changes since 1980s, the
technological advances, and the customer preferences’ volatility in the UK insurance industry,
in order to explore how insurance companies survive in such a changeable environment.

The aim of the first core chapter is to examine the impact of various corporate governance
arrangements on the performance of UK life and non‐life insurance firms, both listed and non‐
listed, during the period 2004‐2013. The main findings show that longer tenure length and an
extra bonus ratio with higher ownership ratio for executives, but a shorter tenure length for
independent non‐executives, improves firm performance in insurance companies.
Furthermore, the findings for the sub‐samples indicate the association between corporate
governance and firm performance in non‐life and listed insurance companies, during the
financial crisis of (2007‐2009), and even more afterwards, as well as during the soft phases of
the underwriting insurance cycle, rather than the hard phases.

The objective of the second core chapter is to assess whether the newly built UK Corporate
Governance Index (UKCGI), which has been developed by the researcher, indicates any
association between governance structure and firm performance in the UK life and non‐life
insurance companies, both listed and non‐listed, during the period 2004‐2013. Moreover, this
study investigates the mediating role of agency costs on the relationship between corporate
governance and the performance of UK insurance companies. The main findings indicate a
significant association between the new corporate governance index (UKCGI) and firm
performance, and that the governance‐performance relationship is fully mediated by agency
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costs, suggesting that corporate governance does help to reduce agency costs, which in turn
leads to improved firm performance.

Finally, since the choice of distribution channels can determine the success of an insurer and
significantly affect its profitability in related markets, the third core chapter compares the
efficiency of distribution strategies, whether single or multi‐channel, that life and non‐life
insurance companies, both stock and mutual, implemented in the UK during the period 2004‐
2013. It then examines the extent to which the choice of a specific distribution strategy, namely
independent agents as a complementary corporate governance system, improve firm
efficiency, by reducing agency conflicts between policyholders and managers and
shareholders. The main findings show that multi‐channel insurers have higher scale efficiency
compared to other single strategies, in which they have almost reached their optimal size to
operate efficiently and utilise their strengths. In the second stage, the association between
corporate governance, estimated by the researcher’s newly built corporate governance index
(UKCGI), and firm efficiency, measured by the data envelopment analysis (DEA), has been fully
confirmed in stock companies. On the other hand, the results also show that independent
agency strategy does play a vital role as a complementary corporate governance system, with
strong evidence for stock companies, but weaker evidence for mutuals.

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Table of Contents
Table of Contents ....................................................................................................................... vii
List of Tables ................................................................................................................................ xi
List of Figures ............................................................................................................................. xv
DECLARATION OF AUTHORSHIP ....................................................................................... xvii
DEDICATION ............................................................................................................................... xix
Acknowledgements ................................................................................................................. xxi
Definitions and Abbreviations ......................................................................................... xxiii
Chapter 1: Introduction ................................................................................................... 1
1.1 Research Focus, Aim and Questions ....................................................................................1
1.2 Background and Research Motivations ..............................................................................4
1.2.1 Overview of the UK Insurance Market ...............................................................4
1.2.2 Corporate Governance and Agency Conflicts ..................................................5
1.2.3 Regulatory Changes in the UK Insurance Market .........................................6
1.2.4 Distribution in the UK Insurance Market .........................................................7
1.2.5 Research Motivations ................................................................................................8
1.3 Research Contributions .............................................................................................................9
1.4 Structure of the Thesis ............................................................................................................ 10
Chapter 2: Does Corporate Governance affect the Performance of Insurance
Firms in the UK? ....................................................................................................... 13
Abstract ..................................................................................................................................................... 13
2.1 Introduction ................................................................................................................................. 14
2.2 Literature Review...................................................................................................................... 17
2.2.1 Firm Performance and Corporate Governance ........................................... 17
2.2.2 Corporate Governance Arrangements and Practices: Hypotheses
Development .............................................................................................................. 19
2.3 Data and Methodology ............................................................................................................ 28
2.3.1 Research Philosophy, Approach and Methods ............................................ 28
2.3.2 Sample Selection and Data Sources ................................................................. 30
2.3.3 Variables: Description and Measurement ..................................................... 31
2.4 Data Analysis and Discussion ............................................................................................... 40
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2.4.1 Descriptive Statistics .............................................................................................. 40
2.4.2 Robustness Checks .................................................................................................. 44
2.4.3 Model Specifications ............................................................................................... 47
2.4.4 Results and Discussion .......................................................................................... 49
2.5 Conclusion .................................................................................................................................... 69
2.5.1 Research Findings ................................................................................................... 69
2.5.2 Research Contributions & Policy Implications ........................................... 71
2.5.3 Research Limitations .............................................................................................. 71
2.5.4 Further Research ..................................................................................................... 72
Chapter 3: The Development of a Corporate Governance Index for UK
Insurance Firms, a Necessary Panacea? ......................................................... 75
Abstract ..................................................................................................................................................... 75
3.1 Introduction ................................................................................................................................ 76
3.2 Literature Review ..................................................................................................................... 79
3.2.1 Toward Developing Corporate Governance Indices ................................. 79
3.2.2 Corporate Governance, Agency Costs and Firm Performance in the UK
Insurance Companies ............................................................................................. 83
3.3 Data and Methodology ............................................................................................................ 90
3.3.1 Research Philosophy, Approach and Methods ............................................ 90
3.3.2 Mediation Analysis .................................................................................................. 91
3.3.3 Sample Selection and Data Sources ................................................................. 93
3.3.4 Variables: Description and Measurement ..................................................... 94
3.4 Data Analysis and Discussion ........................................................................................... 109
3.4.1 Descriptive Statistics ........................................................................................... 109
3.4.2 Robustness Checks ............................................................................................... 113
3.4.3 Model Specifications ............................................................................................ 116
3.4.4 Results and Discussion ....................................................................................... 118
3.5 Conclusion ................................................................................................................................. 129
3.5.1 Research Findings ................................................................................................ 129
3.5.2 Research Contributions & Policy Implications ........................................ 130
3.5.3 Research Limitations ........................................................................................... 131
3.5.4 Further Research .................................................................................................. 132
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Chapter 4: The Choice of Distribution Strategy as a Complementary
Corporate Governance System, Does it work? ........................................... 135
Abstract .................................................................................................................................................. 135
4.1 Introduction .............................................................................................................................. 136
4.2 Literature Review................................................................................................................... 139
4.2.1 Distribution in the UK Insurance Market ................................................... 139
4.2.2 The Choice of Distribution and Performance ........................................... 150
4.2.3 Corporate Governance, Distribution Strategy and Performance ..... 151
4.3 Data and Methodology ......................................................................................................... 158
4.3.1 Research Philosophy, Approach and Methods ......................................... 158
4.3.2 Sample Selection and Data Sources .............................................................. 159
4.3.3 Variables: Description and Measurement .................................................. 160
4.4 Data Analysis and Discussion ............................................................................................ 172
4.4.1 Descriptive Statistics ........................................................................................... 172
4.4.2 Robustness Checks ............................................................................................... 181
4.4.3 Model Specifications ............................................................................................ 182
4.4.4 Results and Discussion ....................................................................................... 184
4.5 Conclusion ................................................................................................................................. 192
4.5.1 Research Findings ................................................................................................. 192
4.5.2 Research Contributions and Policy Implications .................................... 193
4.5.3 Research Limitations ........................................................................................... 194
4.5.4 Further Research ................................................................................................... 194
Chapter 5: Conclusion .................................................................................................. 199
5.1 Research Key Findings ......................................................................................................... 199
5.2 Policy Implications ................................................................................................................ 201
5.3 Research Limitations ............................................................................................................ 202
5.4 Further Research .................................................................................................................... 204
List of References ................................................................................................................... 209

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