Directors׳ and officers׳ liability insurance and the cost of equity☆
By Zhihong Chen, H. Zou. 2016
138 citations recorded by the source corpus.
We examine whether directors׳ and officers׳ (D&O) liability insurance affects a firm’s cost of equity. We find a positive association between D&O insurance and the cost of equity. Information quality and risk-taking appear to be two underlying channels through which D&O insurance affects the cost of equity. Further tests suggest that this positive association is not due to optimal risk-taking, as evidenced by a negative market reaction to an increase in D&O insurance coverage, a lack of improvement in firms׳ cash flow and a low valuation associated with high D&O insurance. Overall, our evidence is consistent with the notion that D&O insurance weakens the disciplining effect of shareholder litigation, leading to an increase in the cost of equity.
Subfields: Accounting, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/4cf15153acb49f764f285fc82aab6d8dfa7a814d
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Accounting
In Economics and Econometrics
Citations in the corpus
- Managerial foreign experience and corporate innovation (2018, methodology): “experience in innovative firms vs. non-innovative firms Following Chen et al. (2016), we adopt the event study to address the potential endogeneity.”