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Hansmann, 1985; Hoerger et al., 1990; Mayers and Smith, 1990; Adiel, 1996; Garven and
Lamm-Tennant, 2003; Cole and McCullough, 2006; Cole et al., 2010; Powell and Sommer,
2007; Cummins et al., 2008; Wang et al., 2008; Garven et al., 2014; Shiu, 2011; and Ho and
Lai, 2014). For example, Mayer and Smith (1990) suggest that the organizational form of
insurers is related to their risk taking and reinsurance demand. They suggest that mutual
insurers purchase more reinsurance than stock insurers.
9
On the other hand, Adams (1996) suggests that stock insurers use more reinsurance than
mutual insurers. Cole and McCullough (2006) find that stock insurers purchase more
reinsurance. Cummins et al. (2008) also suggest that stock insurers purchase more
reinsurance from non-affiliated reinsurers than mutual insurers.
10
Garven and Lamm-Tennant
(2003) indicate that an insignificant relation between organizational structure and
reinsurance demand. In summary, the empirical evidence on the relation between
organizational structure and reinsurance is inconclusive.
In addition, the relation between organizational structure and reinsurance demand is
likely to be in equilibrium prior to CEO turnovers. Whether new CEOs will change the
relation between organizational structure and reinsurance demand depends on the risk-taking
behavior of new CEOs. Since we cannot predict whether new CEOs resulting from turnovers
of mutual insurers will have higher or lower risk-taking behavior than new CEOs of stock
insurers, the sign of the interaction term between routine (voluntary) or non-routine (forced)
CEO turnover and organizational structure on reinsurance demand cannot be predicted. This
leads to the following null hypothesis:
Hypothesis 4: There is no interaction effect between CEO turnover and organizational
structure on reinsurance demand after CEO turnover.
2.5 The Sarbanes-Oxley Act and Reinsurance Demand
The Sarbanes-Oxley Act of 2002 requires CEOs to be responsible for the financial
statements of the firm. Since the implementation of this act, boards of directors have become
extremely cautious about their roles. Wang et al. (2010) examine risk-taking behavior in
relation to CEO turnover prior to and following the implementation of SOX.
11
They find that
CEOs have become significantly more risk averse following the passage of SOX. It is
9 Mayers and Smith (1990) find that widely held stock insurers purchase less reinsurance than closely held,
single-owner, and association-owned insurers.
10 Cummins et al. (2008) use the data from 1995 to 2003 in the U.S. property casualty insurance industry.
11 Final sample includes 670 CEO turnovers from 1999 to 2005.