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臺大管理論叢
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2S
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249
demand after CEO turnover. Specifically, mutual insurers with non-routine (forced) CEO
turnover are more likely to purchase less reinsurance from affiliated reinsurers. Finally, our
results also show that insurers with CEO turnover are not related to reinsurance demand
post-SOX. The overall results of this study indicate that CEO turnovers have a significant
impact on the demand for reinsurance.
Our study stands out in several ways. First, we are the first to examine the impact of
CEO turnover on reinsurance demand after CEO turnover in the U.S. property casualty
insurance industry. Second, we also examine the impact of reinsurance demand on four CEO
turnover types (i.e., routine CEO, non-routine CEO, forced CEO and voluntary CEO). While
most previous literature focuses on large and publicly listed firms, we include mutual
insurers. To obtain turnover types for mutual insurers, we hand collect the data for major
CEO turnover types.
4
Third, no research has been done on reinsurance demand related to
CEO turnover in the context of organizational structure and the SOX Act. Our paper also
contributes more broadly as an organizational structure issue to analyze CEO turnover on
reinsurance policy.
The paper is organized as follows: Section 2 presents the hypothesis development. The
data and methodology are described in Section 3. Section 4 provides the summary statistics
and empirical results. Section 5 presents the conclusion.
2. Hypothesis Development
This section addresses the relation between reinsurance demand and CEO turnover. We
develop five hypotheses to examine the impact of CEO turnover on reinsurance demand.
2.1 CEO Turnover and Reinsurance Demand
Bebchuk, Cremers, and Peyer (2011) show that a CEO playing a dominant role in the
firm’s decision-making may lead to more conservative (i.e., risk averse) decisions because
he/she wants to protect his or her job.
5
Pathan (2009) suggests that CEOs who have more
power to influence board decisions are more likely to take on lower risk because managers
have un-diversifiable wealth, including human capital and a comparatively fixed salary. A
new CEO typically takes actions including a combination of operating, investing, and
4 In prior literature on the insurance industry, authors have focused on routine and non-routine CEO
turnover rather than forced and voluntary CEO turnover (e.g., He and Sommer, 2011; Cheng et al., 2017).
5 This paper notes that managers will avoid excessive risk taking to protect their positions.