Directors’ and Officers’ Liability Insurance and Firm Value

36 Pages Posted: 5 Jun 2018

Date Written: June 2018


This study examines the effect of directors' and officers' liability (D&O) insurance on firm value. Previous studies are divided on the value implication of D&O insurance: some argue for various benefits of being covered by D&O insurance, whereas others focus on the managerial opportunism stemming from being insured. In order to address whether D&O insurance increases firm value, we utilize a sample of quoted Korean companies from a period in which the disclosure of D&O insurance information was mandatory and there was a significant cross‐sectional variation in the firms' coverage of D&O insurance. We find that controlling for the endogeneity of D&O insurance coverage, D&O insurance increases firm value compared to noninsured firms. We also find evidence that the increase in firm value is pronounced for firms with greater growth opportunities, which suggests that D&O insurance can help firms to better convert growth opportunities into higher firm value.

Suggested Citation

Hwang, Joon Ho and Kim, Byungmo, Directors’ and Officers’ Liability Insurance and Firm Value (June 2018). Journal of Risk and Insurance, Vol. 85, Issue 2, pp. 447-482, 2018, Available at SSRN: or

Joon Ho Hwang (Contact Author)

Korea University ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701

Byungmo Kim

Dankook University ( email )

126 Jukjeon-dong
Yongin-si, Gyeonggi-do 448-701
+82-31-8005-3411 (Phone)

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