U.S. Evidence from D&O Insurance on Agency Costs: Implications for Country-Specific Studies

60 Pages Posted: 1 Mar 2019

See all articles by Dain C. Donelson

Dain C. Donelson

University of Texas at Austin - Red McCombs School of Business

Brian Monsen

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Christopher G. Yust

Texas A&M University

Date Written: February 2019

Abstract

Many academic studies use country-specific evidence to investigate research questions of broad interest due to unique research advantages of a given country, such as data availability or to exploit an exogenous event that allows identification. One such research stream examines Canadian directors’ and officers’ (D&O) insurance and generally finds that policy limits are positively associated with firm agency cost measures. However, the U.S. and Canada differ on key legal issues relevant to securities litigation and institutional features of the D&O insurance market. Accordingly, we predict and find that premiums, rather than limits, provide useful information about U.S. agency cost measures. Thus, while researchers argue for disclosure of U.S. D&O insurance information, the usefulness of such disclosures would be limited. We conclude that calls for the disclosure of U.S. D&O insurance information are premature. Our findings provide a cautionary note for the generalizability of country-specific studies.

Keywords: Directors’ and Officers’ Insurance; Audit Fees; Agency Costs; Financial Reporting

JEL Classification: G22, G32, G34, G38, K22, K41, M41, M42

Suggested Citation

Donelson, Dain C. and Monsen, Brian and Yust, Christopher G., U.S. Evidence from D&O Insurance on Agency Costs: Implications for Country-Specific Studies (February 2019). Available at SSRN: https://ssrn.com/abstract=3339029 or http://dx.doi.org/10.2139/ssrn.3339029

Dain C. Donelson

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States
512-232-3733 (Phone)

Brian Monsen

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Christopher G. Yust (Contact Author)

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States
979.845.3439 (Phone)

HOME PAGE: http://www.christopheryust.com

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