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- Title
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE AND FIRM VALUE.
- Authors
Hwang, Joon Ho; Kim, Byungmo
- Abstract
This study examines the effect of directors' and officers' liability (D&O) insurance on firm value. Previous studies are divided on the value implication of D&O insurance: some argue for various benefits of being covered by D&O insurance, whereas others focus on the managerial opportunism stemming from being insured. In order to address whether D&O insurance increases firm value, we utilize a sample of quoted Korean companies from a period in which the disclosure of D&O insurance information was mandatory and there was a significant cross-sectional variation in the firms' coverage of D&O insurance. We find that controlling for the endogeneity of D&O insurance coverage, D&O insurance increases firm value compared to noninsured firms. We also find evidence that the increase in firm value is pronounced for firms with greater growth opportunities, which suggests that D&O insurance can help firms to better convert growth opportunities into higher firm value.
- Subjects
EXECUTIVES' liability insurance; ENTERPRISE value; OPPORTUNISM (Psychology); ENDOGENEITY (Econometrics); ORGANIZATIONAL growth
- Publication
Journal of Risk & Insurance, 2018, Vol 85, Issue 2, p447
- ISSN
0022-4367
- Publication type
Article
- DOI
10.1111/jori.12136