Abstract

http://ssrn.com/abstract=1524063
 
 

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Probability Updating and the Market for Directors’ and Officers’ Insurance


Stephen G. Fier


University of Mississippi - School of Business Administration

Kathleen A. McCullough


Florida State University - College of Business

Joan T. A. Gabel


Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law

Nancy Mansfield


Georgia State University - Risk Management & Insurance Department

July 1, 2012


Abstract:     
Over the past decade, much attention has been given to the topics of corporate governance and corporate risk management. One increasingly important insurance product associated with each of these issues is directors’ and officers’ (D&O) liability insurance. Given the interconnectedness that exists between D&O insurance, corporate risk management, and corporate governance, we exploit industry-specific D&O data to explain how industries most associated with the corporate scandals of the early 2000’s adjusted demand patterns during periods of certainty and uncertainty. The rich dataset coupled with dramatic changes in the marketplace allows for the testing of insurance demand patterns and enables us to offer insight into the market’s response to a unique type of loss shock. The results of this study suggest evidence in favor of demand-side probability updating, whereby those industries most associated with the corporate scandals of the early 2000s adjusted the demand for D&O insurance during periods of greater uncertainty.

Number of Pages in PDF File: 28

Keywords: directors and officers insurance, probability updating, loss shock, rational expectations, institutional intervention

JEL Classification: G22, G34, E32

working papers series


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Date posted: December 18, 2009 ; Last revised: October 4, 2012

Suggested Citation

Fier, Stephen G. and McCullough, Kathleen A. and Gabel, Joan T. A. and Mansfield, Nancy, Probability Updating and the Market for Directors’ and Officers’ Insurance (July 1, 2012). Available at SSRN: http://ssrn.com/abstract=1524063 or http://dx.doi.org/10.2139/ssrn.1524063

Contact Information

Stephen G. Fier
University of Mississippi - School of Business Administration ( email )
PO Box 3986
Oxford, MS 38677
United States
Kathleen A. McCullough (Contact Author)
Florida State University - College of Business ( email )
Department of Risk Management and Insurance
150 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-8358 (Phone)
850-644-4077 (Fax)
Joan T. A. Gabel
Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law ( email )
College of Business
Tallahassee, FL 32306
United States
Nancy R. Mansfield
Georgia State University - Risk Management & Insurance Department ( email )
P.O. Box 4036
Atlanta, GA 30302-4036
United States
404-651-4119 (Phone)
404-651-4219 (Fax)
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