Organizational structure and performance: evidence from the non-life insurance industry in Japan

Abstract

This study examines the impact of organizational structure on firm performance, incentive problems, and financial decisions in the Japanese non-life (property-casualty) insurance industry. Stock companies that belong to one of six horizontal keiretsu groups have lower expenses and lower levels of free cash flow than independent stock and mutual insurance companies. Keiretsu insurers also have higher profitability and higher loss ratios than independent insurers. There is no significant difference in operational efficiency (operating expenses and loss ratios) between stock and mutual insurance companies. Mutual insurers have higher levels of free cash flows, higher investment income and lower leverage than stock insurers. The evidence suggests that each structure has its own comparative advantage.