Essays on corporate governance and regulation in the Korean insurance market

Abstract

This thesis consists of three essays on the behavior of insurance companies under corporate governance and regulatory environment. The first paper examines the relationship between governance and performance of the insurance companies in Korea. Corporate governance variables play an important role in influencing the performance for non-life insurance companies, but not for life insurance companies in Korea. The disparity appears to have a significantly positive impact on firm performance as measured by profitability. The larger the difference between voting rights and cash flow rights of major shareholders in an insurance company, the better the performance for that insurance company in Korea. This finding can be explained by the superior performance of high disparity companies who have an insurance company in their group of firms. Furthermore, controlling shareholders involved in this disparity closely monitor their financial companies which in turn, lead to efficiency in the form of lower operating expenses. Analysis on the performance on intra group transaction shows that the favorable response of market to this event reduced under concentrated ownership. Second paper analyzes the efficiency of non-life insurance companies and examines the impact of corporate governance using data for insurance companies in Korea before and after the crisis using DEA. We find that the controlling owner``s shares have positive relationships with the efficiency of the firm. This result supports the interest alignment hypothesis. The existence of outside block investor also has positive impact on gross efficiency measured by TE with marginal level of significance. Our examination shows that the size is the most dominating factor to explain the performance of the firm in Korean non-life insurance market. The increase in efficiency after the financial crisis in 1997 is significant. Third paper presents tests to assess market power in the Korean auto insurance market and ...