Directors’ and Officers’ Liability Insurance and Acquisition Outcomes

By Chen Lin, Micah S. Officer, H. Zou. 2011

255 citations recorded by the source corpus.

We examine the effect of directors' and officers' liability insurance (D&O insurance) on the outcomes of merger and acquisition (M&A) decisions. We find that acquirers whose executives have a higher level of D&O insurance coverage experience significantly lower announcement-period abnormal stock returns. Further analyses suggest that acquirers with a higher level of D&O insurance protection tend to pay higher acquisition premiums and their acquisitions appear to exhibit lower synergies. The evidence provides support for the notion that the provision of D&O insurance can induce unintended moral hazard by shielding directors and officers from the discipline of shareholder litigation.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9799cdffe1b4598e8085d5ffb6b887fddf9ddacd

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In Accounting

1. Zhihong Chen
2. Chen Lin
3. H. Zou
4. Tao Chen
5. Yongtae Kim
6. Ye Cai
7. Jarrad Harford
8. Halbert White

In Economics and Econometrics

1. Zhihong Chen
2. H. Zou
3. Jarrad Harford
4. Tao Chen
5. Chen Lin
6. Halbert White
7. Ye Cai
8. Yongtae Kim

Citations in the corpus

• Common Auditors in M&A Transactions (2016, methodology): “…been used in the literature for M&A quality: (1) post-acquisition change in ROA, ∆ROA, (Healy et al., 1992; Chen et al., 2007; Wang and Xie, 2009; Lin et al., 2011; Fu et al., 2013; Goodman et al., 2014), and (2) the probability of a post-acquisition goodwill impairment, Prob_GW_Impair…”
• Directors׳ and officers׳ liability insurance and the cost of equity☆ (2016, methodology): “…on accounting restatements (Kim, 2006), reporting conservatism (Chung and Wynn, 2008), management forecasts (Wynn, 2008), investment decisions (Lin et al., 2011) and loan financing (Lin et al., 2013), we document how D&O insurance affects the…”
• Do Analysts Matter for Governance? Evidence from Natural Experiments (2015, methodology): “Lin et al. (2011) find that acquirers whose executives have a higher level of D&O insurance coverage experience significantly lower announcement-period abnormal stock returns.”