A MARKET-BASED EVALUATION OF THE ELECTION VERSUS APPOINTMENT OF REGULATORY COMMISSIONERS

This paper examines the elected versus appointed commissioner dichotom y from a market value perspective. Previous empirical analysis tends t o concentrate on rates rather than examining the impact on shareholder s' wealth. We examine life insurance industry data during the period s urrounding the passage of California's Proposition 103. The primary im pact of the referendum on life insurers is to change the method of com missioner selection from appointment to popular vote. We find that thi s change significantly reduced the value of life insurers doing busine ss in California. This result is consistent with the recent findings o f Boyes and McDowell (1989) and Smartt (1994) using alternative evalua tion procedures for firms in other related industries. This implies th at the change to a popular election of commissioners either increases the level of risk and/or decreases the expected cash flows of regulate d firms.