Free Cash Flow in the Life Insurance Industry

Dividend decisions in the property and liability insurance industry: mutual versus stock companies

“…The risk-profile hypothesis (e.g., see Lamm-Tennant and Starks 1993;Morse 2000), which predicts that mutual insurers are less risky than stock insurers, is supported by comparing the mean/ median of LEV and EARISK between mutuals and stocks. In contrast to the finding of Wells et al (1995) that document a larger (absolute amount of) free cash flow in mutual life insurers than stock life insurers, stock P-L insurers in our sample appear to have a higher and WORKER represents the proportion of earned premium income from personal auto physical damage and liability insurance, homeowners insurance, fire insurance, commercial multi-perils, inland marine, ocean marine, allied lines, and workers' compensation, respectively a, b, c statistically significant at the 10, 5 and 1% level (two-tailed)…”

“…On the other hand, there is ample evidence suggesting that policyholders' monitoring of managers in mutual insurers is often ineffective. 6 For example, Wells et al (1995) report that mutual life insurers have a larger free cash flow than stock life insurers, other things being equal. This suggests that managers in mutual insurers could choose to pay less dividends than in stock insurers so that they have more free cash flow at their disposal.…”

“…Scordis and Pritchett (1998) argue, and find support for the argument (using a sample of mutual life insurers), that in order to relieve the concerns of policyholders, managers of mutuals may practice a more liberal dividend payout policy than stocks. While this is possible, many prior studies (e.g., Wells et al 1995) also report that the poor control mechanisms present in mutuals (e.g., the lack of market for corporate control and stock options as managerial incentive compensation) often result in little pressure being exerted on managers to distribute profits.…”

Testing the Relationship between Free Cash Flow and Company Performance in Borsa Istanbul

“…Other studies have taken the logarithm of the Tobin's Q ratio and entered it into an analysis (Kazempour & Aghaei, 2015;Mansourlakoraj & Sepasi, 2015;Park & Jang, 2013). Lehn and Poulsen (1989), Lang, Stulz, and Walkling (1991), Wells, Cox, and Gaver (1995), Chu (2011), Gul and Tsui (1997), Wu (2004), Chung et al (2005), Brush et al (2000), Wang (2010), Al-Zararee and Al-Azzawi (2014), Mansourlakoraj and Sepasi (2015), Rahman and Saleh (2008) and Kadioglu and Yilmaz (2017) used the undistributed free cash flow method when calculating free cash flow.…”

Performance and size: empirical evidence from Portuguese SMEs

“…Debt forces managers to manage resources more efficiently, given the reduction in free cash flows, since there is the need to pay off the debt interest periodically (Jensen 1986;Berger et al 1995;Wells et al 1995;Adams 1996).…”