Managerial Opportunism? Evidence from Directors' and Officers' Insurance Purchases

Posted: 19 Nov 2002

See all articles by John Chalmers

John Chalmers

University of Oregon

Larry Dann

University of Oregon - Department of Finance

Jarrad Harford

University of Washington; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Abstract

We analyze a sample of 72 IPO firms that went public between 1992 and 1996 for which we have detailed proprietary information about the amount and cost of D&O liability insurance. If managers of IPO firms are exploiting superior inside information, we hypothesize that the amount of insurance coverage chosen will be related to the post-offering performance of the issuing firm's shares. Consistent with the hypothesis, we find a significant negative relation between the three-year post-IPO stock price performance and the insurance coverage purchased in conjunction with the IPO. One plausible interpretation is that, like insider securities transactions, D&O insurance decisions reveal opportunistic behavior by managers. This provides some motivation to argue that disclosure of the details of D&O insurance decisions, as is required in some other countries, is valuable.

Suggested Citation

Chalmers, John and Dann, Larry Y. and Harford, Jarrad, Managerial Opportunism? Evidence from Directors' and Officers' Insurance Purchases. Available at SSRN: https://ssrn.com/abstract=309175

John Chalmers (Contact Author)

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3337 (Phone)

Larry Y. Dann

University of Oregon - Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
(541) 346-3330 (Phone)

Jarrad Harford

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)

HOME PAGE: http://faculty.washington.edu/jarrad/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,079
PlumX Metrics