On the Corporate Demand for Directors' and Officers' Insurance

John E. Core

278 citations0/0 files storedJournal of Risk & Insurance

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Insurance and Financial Risk Management Corporate Finance and Governance Law, Economics, and Judicial Systems

Abstract

Using data on directors' and officers' insurance policies gathered from a sample of Canadian firms, this article examines the determinants of firms' demand for D&O insurance. Firms with greater litigation risk are more likely to purchase insurance and carry higher limits and deductibles. The data do not support the hypothesis that director cash compensation substitutes for D&O insurance. Consistent with the hypotheses of Mayers and Smith (1982, 1987), firms with greater distress probability and utilities are more likely to purchase insurance and carry higher limits. However, firms with greater inside shareownership are less likely to purchase insurance and carry lower limits. Firms with greater inside voting control are more likely to purchase insurance and carry

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1997A Survey of Corporate Governance 1983Limited-dependent and qualitative variables in econometrics 1977Determinants of corporate borrowing 1988Management ownership and market valuation 1992The investment opportunity set and corporate financing, dividend, and compensation policies 1992On the Relationship Between Firm Size and Export Intensity 1993Additional evidence on the association between the investment opportunity set and corporate financing, dividend, and compensation policies

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