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Board characteristics and life insurance efficiency in South Africa

Board characteristics and life insurance efficiency in South Africa In their role as monitors and advisors, boards are expected to address agency conflicts associated with the separation of ownership from control in large corporations. The ability to effectively perform these functions and enhance corporate outcomes largely depends on their influence in decision-making. This paper aims to examine the effect of corporate governance attributes, in the form of board characteristics, on technical efficiency in the South African life insurance industry.Design/methodology/approachUsing the two-stage data envelopment analysis technique, bootstrapped efficiency scores are estimated for 73 insurers from 2007 to 2014 in Stage 1. The truncated bootstrapping procedure of Simar and Wilson (2007) and the tobit estimation techniques are used to examine the effect of corporate governance characteristics and other insurer level attributes on technical efficiency scores in Stage 2 analysis.FindingsThe findings suggest that life insurers operate with high levels of inefficiency within a highly independent governance structure. The results from Stage 2 analysis identifies audit committee size and independence to improve efficiency while board independence is found to be detrimental to efficiency.Practical implicationsThe findings provide a useful reference point for insurance regulators in developing economies in the formulation of an effective governance mechanism for the efficient operation of the insurance industry.Originality/valueAs far as the authors are concerned, the analysis contained in this paper presents the first empirical assessment of the corporate governance structure and its effects on corporate outcomes in an African insurance market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Pacific Accounting Review Emerald Publishing

Board characteristics and life insurance efficiency in South Africa

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0114-0582
DOI
10.1108/par-06-2019-0066
Publisher site
See Article on Publisher Site

Abstract

In their role as monitors and advisors, boards are expected to address agency conflicts associated with the separation of ownership from control in large corporations. The ability to effectively perform these functions and enhance corporate outcomes largely depends on their influence in decision-making. This paper aims to examine the effect of corporate governance attributes, in the form of board characteristics, on technical efficiency in the South African life insurance industry.Design/methodology/approachUsing the two-stage data envelopment analysis technique, bootstrapped efficiency scores are estimated for 73 insurers from 2007 to 2014 in Stage 1. The truncated bootstrapping procedure of Simar and Wilson (2007) and the tobit estimation techniques are used to examine the effect of corporate governance characteristics and other insurer level attributes on technical efficiency scores in Stage 2 analysis.FindingsThe findings suggest that life insurers operate with high levels of inefficiency within a highly independent governance structure. The results from Stage 2 analysis identifies audit committee size and independence to improve efficiency while board independence is found to be detrimental to efficiency.Practical implicationsThe findings provide a useful reference point for insurance regulators in developing economies in the formulation of an effective governance mechanism for the efficient operation of the insurance industry.Originality/valueAs far as the authors are concerned, the analysis contained in this paper presents the first empirical assessment of the corporate governance structure and its effects on corporate outcomes in an African insurance market.

Journal

Pacific Accounting ReviewEmerald Publishing

Published: Apr 2, 2020

Keywords: Corporate governance; Efficiency; DEA; Insurance; South Africa; D22; G22

References