Essays on mutual and stock financial intermediaries

Valnek, Tomas (1996) Essays on mutual and stock financial intermediaries. Doctoral thesis, University of London: London Business School.

Abstract

This thesis addresses the issue of the coexistence of mutual and stock financial intermediaries in the UK. In "The Choice of Organisational Form: The Case of Mutual and Stock Long- Term Insurance Companies", we investigate the causes and the consequences of the choice of organisational form of long-term insurance companies. Our analysis is based on the different characteristics of the residual claims issued by mutual and by stock organisations. We find that the characteristics of the residual claim of mutual organisations make them more suitable to handle agency conflicts whereas the characteristics of the residual claim of stock organisations, common stock, make them more suitable to handle risk. However, organisation specific benefits are offset by organisation specific costs: mutual and stock long-term insurance companies have the same performance. In "The Comparative Performance of Mutual Building Societies and Stock Retail Banks", we investigate the comparative performance of mutual building societies and stock retail banks. Our results indicate that mutual building societies appear to have outperformed stock retail banks, suggesting that the benefits of mutual organisations may outweigh those of stock organisations. These benefits stem from the merger of the owner and of the depositor functions and from their homogenous clientele: costs related to conflicts between different classes of claimholders and conflicts within the single class of claimholders are thus avoided. However, the low performance of banks may be temporary and separate regulations may have had an impact.