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Journal of Law, Economics, and Organization Advance Access originally published online on August 19, 2005
Journal of Law, Economics, and Organization 2005 21(2):417-440; doi:10.1093/jleo/ewi016
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© The Author 2005. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oupjournals.org

Agency Problems and the Corporate Charter

David Mayers

University of California, Riverside

Clifford W. Smith, Jr.

University of Rochester

Theory says that mutual and stock organizational forms have a comparative advantage in specific contracting dimensions. We examine corporate charter and bylaw provisions from a sample of insurance companies with incorporations spanning the 19th century. We find that charter and bylaw provisions differ in predictable ways across organizational forms. For example, mutual charters and bylaws are more likely than those of stock companies to include provisions restricting the company's operating policies (because mutuals have higher costs of controlling management discretion). Our examination supports the proposition that incentive problems between owners and managers are more pronounced in mutuals. This implies an offsetting benefit, which we interpret as the internalization of owner-customer incentive conflict problems.


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