Directors, Directors and Officers Insurance and Corporate Governance

18 Pages Posted: 10 Dec 2010  

Li-Ming Han

The Chinese University of Hong Kong (CUHK), Faculty of Business Administration, Department of Finance (Deceased)

Richard D. MacMinn

National Chengchi University

Yayuan Ren

Illinois State University-College of Business

Date Written: December 8, 2010

Abstract

This article models a board of directors consisting of either pure directors or shareholder directors. Different from pure directors, shareholder directors own equity of the firm in addition to receiving directors’ fee. The model reaches a conclusion that if directors owe their appointments to the CEO, both pure and shareholder directors tend to endorse CEO’s decisions unless they can form a majority to counter‐balance the CEO. It shows that D&O insurance does not change directors’ decisions to follow the CEO but affects their decisions to accept the job. The analysis also shows that when the board is made up of only shareholder directors who have equal equity and liability stakes in the firm, the board will move the CEO’s decision toward one that maximizing shareholders’ value.

Keywords: Directors, Directors and Officers Insurance, Corporate Governance

JEL Classification: G34, G22

Suggested Citation

Han , Li-Ming and MacMinn, Richard D. and Ren, Yayuan, Directors, Directors and Officers Insurance and Corporate Governance (December 8, 2010). Available at SSRN: https://ssrn.com/abstract=1722289 or http://dx.doi.org/10.2139/ssrn.1722289

Li-Ming Han

The Chinese University of Hong Kong (CUHK), Faculty of Business Administration, Department of Finance (Deceased)

Shatin, N.T.
Hong Kong

Richard D. MacMinn (Contact Author)

National Chengchi University ( email )

Taipei
Taiwan

Yayuan Ren

Illinois State University-College of Business ( email )

Normal, IL
United States

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