Managerial Discretion, Regulation, and Stock Insurer Ownership Structure

Variation in operating characteristics across ownership structures in the property-liability insurance industry could be caused by regulatory and tax differences as well as controlrelated incentives. We exploit variation in ownership structure within the population of common stock insurers to help solve this identification problem. Consistent with the managerial discretion hypothesis, we find that different ownership classes operate in lines that are statistically distinguishable. Because of our focus on stock firms, this variation is not attributable to taxes and regulation alone.