Board Characteristics and Profit Efficiency in the United Kingdom Life Insurance Industry

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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  • Philip Hardwick
  • Mike Adams
  • Hong Zou

Related Research Unit(s)


Original languageEnglish
Pages (from-to)987-1015
Journal / PublicationJournal of Business Finance and Accounting
Issue number7-8
Publication statusPublished - Sep 2011


This paper examines the effects of corporate governance mechanisms (measured by a set of board characteristics) on the profit efficiency of United Kingdom (UK) life insurance firms. A parametric 'stochastic frontier' approach is used to compute profit efficiency scores and second-stage regression models are estimated to test the influence of governance mechanisms on these efficiencies. We find that, viewed in isolation, board characteristics tend to have little effect on firm efficiency in the UK life insurance market. However, we do find that the proportion of non-executive directors on the board exhibits a significant effect on the profit efficiency of our sample UK insurers once the interaction effects among governance mechanisms are taken into account. The effect can be either positive or negative depending on whether there is separation of the CEO and board chairman positions and whether there is an audit committee. These results suggest that corporate governance is an inherently complex process and it is problematical to evaluate the effectiveness of an individual governance mechanism on a firm's economic performance. Insurers' profit efficiency is also negatively related to risk proxies and exhibits a concave relation with firm size. © 2011 Blackwell Publishing Ltd.

Research Area(s)

  • Corporate governance, Life insurance, Profit efficiency, United kingdom