54 Pages Posted: 18 Mar 2010 Last revised: 10 Aug 2015
Date Written: October 15, 2011
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.
Keywords: Corporate governance, D&O insurance, Initial public offerings, Income trusts
JEL Classification: G34, G22, J44, G32
Suggested Citation: Suggested Citation
Stern, Lea Henny and Boyer, M. Martin, Is Corporate Governance Risk Valued? Evidence from Directors’ and Officers’ Insurance (October 15, 2011). Journal of Corporate Finance, Vol. 18, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=1571752 or http://dx.doi.org/10.2139/ssrn.1571752
By Michael King