Directors' and Officers' Liability Insurance, Corporate Risk and Risk Taking: New Panel Data Evidence on The Role of Directors' and Officers' Liability Insurance

Marcel Boyer · Sharon L. Tennyson

88 citations0/0 files storedJournal of Risk & Insurance

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Corporate Finance and Governance Insurance and Financial Risk Management Risk Management in Financial Firms

Abstract

ABSTRACT This article develops and tests hypotheses regarding the relationship between directors’ and officers’ (D&O) insurance purchase and firm size, governance characteristics, and business risk, using a unique panel data set on Canadian firms for years 1996–2005. The data permit examination of the determinants of insurance pricing, ownership and coverage limits, and the effects of insurance on board characteristics and earnings management. Results using panel data methods and controlling for endogenous prices and endogenous selection into insurance ownership provide strong statistical evidence for the view that D&O insurance markets take corporate risk into account, but that insurance leads to greater risk taking.

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References

2001Econometric Analysis of Cross Section and Panel Data 1998Law and Finance 1999Corporate Ownership Around the World 1991Earnings Management During Import Relief Investigations 2005Performance matched discretionary accrual measures 1976Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information 1985The effect of bonus schemes on accounting decisions 2005The market pricing of accruals quality

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