Centro de Documentacion de Fundación MAPFRE - Inherent virtue or inevitable evil : the effects of directors' and officers' insurance on firm value

MAP20190000918

Inherent virtue or inevitable evil : the effects of directors' and officers' insurance on firm value / Derrick W. H. Fung,

Sumario: Whether directors' and officers' (D&O) insurance improves firrn value is a controversial issue. We perform a literature review about the effect of D&O insurance and find mixed results. The proponents of D&O insurance believe it enhances corporate monitoring and improves firm value, while the opponents of D&O insurance argue that it creates a moral hazard problem and diminishes firm value. Against this backdrop, we argue that the trade-off between the monitoring and moral hazard effects depends on the information acquired by the outside directors. Using a sample of listed Canadian firms, we find that (1) a change in D&O insurance coverage has no net effect on a firm's subsequent value when we ignore the information acquired by outside directors, (2) an increase in D&O insurance coverage improves a firm's subsequent value when the outside directors are well informed, and (3) an increase in D&O insurance coverage reduces a firm's subsequent value when the outside directors are poorly informed. Our findings are robust to endogeneity checks and have important implications for the regulation of D&O insurance

En: Risk management & insurance review. - Malden, MA : The American Risk and Insurance Association by Blackwell Publishing, 1999- = ISSN 1098-1616. - 28/09/2018 Tomo 21 Número 2 - 2018 , p. 243-288

1. Seguro de responsabilidad civil patronal . 2. Seguro D&O . 3. Directivos de empresas . 4. Riesgo moral . 5. Gerencia de riesgos . 6. Empresas de seguros . 7. Estadísticas . 8. Estados Unidos . I. Título.