Directors' and Officers' Liability Insurance, Corporate Risk and Risk Taking: New Panel Data Evidence on the Role of Directors' and Officers' Liability Insurance

39 Pages Posted: 19 Jan 2016

See all articles by M. Martin Boyer

M. Martin Boyer

HEC Montreal - Department of Finance

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM)

Date Written: December 2015

Abstract

This article develops and tests hypotheses regarding the relationship between directors’ and officers’ (D&O) insurance purchase and firm size, governance characteristics, and business risk, using a unique panel data set on Canadian firms for years 1996–2005. The data permit examination of the determinants of insurance pricing, ownership and coverage limits, and the effects of insurance on board characteristics and earnings management. Results using panel data methods and controlling for endogenous prices and endogenous selection into insurance ownership provide strong statistical evidence for the view that D&O insurance markets take corporate risk into account, but that insurance leads to greater risk taking.

Suggested Citation

Boyer, M. Martin and Tennyson, Sharon L., Directors' and Officers' Liability Insurance, Corporate Risk and Risk Taking: New Panel Data Evidence on the Role of Directors' and Officers' Liability Insurance (December 2015). Journal of Risk and Insurance, Vol. 82, Issue 4, pp. 753-791, 2015, Available at SSRN: https://ssrn.com/abstract=2717154 or http://dx.doi.org/10.1111/jori.12107

M. Martin Boyer (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

252 MVR Hall
Ithaca, NY 14853
United States
607-255-2619 (Phone)
607-255-4071 (Fax)

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