| This dissertation analyzes how public versus private ownership affects managerial coordination of earnings management, capital management, and tax planning objectives in the life insurance industry between 1975 and 1991. I hypothesize that managers minimize the combined costs of straying from capital, earnings and tax planning goals as well as the costs of exercising discretion over four tools available for meeting these goals: (1) the policy reserve provision, (2) the use of reinsurance, (3) realizing capital gains and losses, and (4) dividend decisions.; Results indicate that differences resulting from ownership structure are most pronounced in the area of tax planning. Private stock companies used both policy reserves and reinsurance to manage taxes while public companies, on average, did not appear to manage taxes. In contrast, I find that both public and private companies manage regulatory capital; private companies are more likely to do so by adjusting dividends, while public companies are more likely to vary the level of reinsurance used. Finally, both public and private companies appear to use policy reserves and reinsurance to manage earnings.; I also investigate whether tax planning differences observed appear to be induced by compensation schemes used to control agency costs in public firms, or concerns with stock market interpretations, by studying the tax planning behavior of mutual firms. These firms have diffuse ownership structures, similar to those of public companies, and thus face similar agency problems. But since mutual firms are owned by their policyholders, they are not subject to the stock market concerns that affect public companies. If both private stock and mutual firms manage taxes more aggressively than public companies, the inference is that stock market concerns create the behavioral differences. However, if only private stock companies are aggressive tax managers, differences are more likely to stem from agency costs. My results indicate that mutual firms, like public companies, do not, on average, manage taxes. This outcome is consistent with incentive compensation contracts, designed to control agency costs, at least partly inducing differences in tax management behavior between private and public stock companies. |
