Is Corporate Governance Risk Valued? Evidence from Directors’ and Officers’ Insurance
Lea Henny Stern
Syracuse University - Department of Finance
M. Martin Boyer
HEC Montreal - Department of Finance
October 15, 2011
Journal of Corporate Finance, Vol. 18, No. 2, 2012
We find that common equity firms pay lower D&O insurance premiums than income trusts, an alternative and riskier ownership form. This result has wide-ranging implications for investors insofar as the information provided by D&O insurers provides investors with an unbiased signal of the firm’s governance risk. The signal is unbiased because it comes from an entity (i.e. the insurer) that has a direct financial incentive to correctly assess an organization’s governance risk, in contrast to other ad hoc governance measures and indices.
Number of Pages in PDF File: 54
Keywords: Corporate governance, D&O insurance, Initial public offerings, Income trusts
JEL Classification: G34, G22, J44, G32
Date posted: March 18, 2010 ; Last revised: August 10, 2015
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