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The purpose of this article is to investigate the effects of directors ' and offi cers ' liability insurance (D & O) on corporate governance and fi rm performance. D & O insurance demand refl ects the fi rm ' s internal evaluation of its exposure to litigation risk. From the investors ' point of view, the D & O insurance purchase data can provide valuable information to assess the underlying risk of the fi rm, corporate governance quality and its future performance. Thus, this article studies the information implications of D & O insurance on the following questions. (1) Does D & O insurance demand refl ect the litigation risk and corporate governance? (2) Does D & O insurance create moral hazard or provide incentives of care to directors and offi cers, which subsequently affect the fi rm ' s performance? We empirically test the data by using companies listed in Taiwan Security Exchanges and fi nd that (1) the demand for D & O insurance is positively related to the fi rm ' s litigation risk and the motivation of its board of directors;(2) there is no evidence supporting that D & O insurance does have a signifi cant impact on the directors ' care incentives and the subsequent fi rm ' s performance. We further provide some suggestions for corporate governance based on these empirical results.

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