D&amp;O insurance and IPO performance: What can we learn from insurers?

Boyer, M. Martin; Stern, Lea Henny

doi:10.1016/j.jfi.2014.05.001

Cited by 59 publications

(25 citation statements)

References 27 publications

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“…Board structure and governance may affect both the demand for D&O insurance and D&O insurance prices, and previous empirical literature has found some support for these effects (O'Sullivan, ; Core, ; Boyer and Stern, ). Our empirical models consider board characteristics that affect the likelihood of board opportunizm in purchasing insurance.…”

Section: Estimating Dando Insurance Demandmentioning

confidence: 97%

“…This idea is consistent with corporate insurance theory, which recognizes that insurance can increase firm value through specialized service provision. This has come to be known as the insurer monitoring hypothesis ; in this view one valuable service of D&O insurers may be monitoring of the firm's directors and officers (Bhagat, Brickley, and Coles, ; Holderness, ; O'Sullivan, ; Baker and Griffith, , ; Boyer and Stern, )…”

Section: Introductionmentioning

confidence: 99%

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Directors' and Officers' Liability Insurance, Corporate Risk and Risk Taking: New Panel Data Evidence on The Role of Directors' and Officers' Liability Insurance

Boyer

Tennyson

2015

J of Risk & Insurance

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This article develops and tests hypotheses regarding the relationship between directors' and officers' (D&O) insurance purchase and firm size, governance characteristics, and business risk, using a unique panel data set on Canadian firms for years [1996][1997][1998][1999][2000][2001][2002][2003][2004][2005]. The data permit examination of the determinants of insurance pricing, ownership and coverage limits, and the effects of insurance on board characteristics and earnings management. Results using panel data methods and controlling for endogenous prices and endogenous selection into insurance ownership provide strong statistical evidence for the view that D&O insurance markets take corporate risk into account, but that insurance leads to greater risk taking.

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Section: Estimating Dando Insurance Demandmentioning

confidence: 97%

Section: Introductionmentioning

confidence: 99%

Directors' and Officers' Liability Insurance, Corporate Risk and Risk Taking: New Panel Data Evidence on The Role of Directors' and Officers' Liability Insurance

Boyer

Tennyson

2015

J of Risk & Insurance

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“…They conclude that this type of insurance induces managers to become less risk averse and accordingly accept riskier but also more value‐enhancing projects and is hence beneficial for the firm, in contrast to the hypothesis of Chalmers, Dann, and Harford () or Core (), who view this kind of liability insurance as a means to promote managerial opportunism. As opposed to the results of Chalmers, Dann, and Harford () mentioned above, Boyer and Stern () an show that insurers demand higher premiums before the IPO to firms that are risker after the IPO. They find that companies paying a high price for their D&O coverage tend to underperform in their first year because of the higher probability to have a lower stock return and a higher volatility post‐IPO.…”

Section: Introductionmentioning

confidence: 66%

“…Among the more recent articles on D&O insurance are the contributions by Cao and Narayanamoorthy (), Lin, Officer, and Zou (), Boyer and Stern, (, ), Gupta and Prakash (), Hwang and Kim (), Boyer and Stern (), Boyer and Tennyson (Forthcoming), and Lin et al (2013). Cao and Narayanamoorthy's () results support the litigation risk hypothesis.…”

Section: Introductionmentioning

confidence: 99%

Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies

Egger¹,

Rădulescu²,

Rees³

2015

J of Risk & Insurance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper introduces a new rationale for the existence of "Directors' and Officers'" (D&O) insurance. We use a model with volatile stock markets where shareholders design compensation schemes that incentivize managers to stimulate short-term increases in stock prices that do not maximize long run stock market value. We show that D&O insurance provides a convenient instrument for the initial shareholders of a company to take advantage of differences in beliefs between insiders and outsiders in capital markets. The empirical results support the idea that both the insurance coverage and the premium are higher in the presence of new shareholders and volatile markets. The results prove robust in various empirical model specifications. Terms of use: Documents in EconStor mayJEL-Code: G220, G300, C230, M520.

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“…The impact that litigation risk has on the demand of D&O insurance will be stronger. Boyer & Stern (2014) showed that the regional efficiency of different legal system may eventually influence the execution of the law.…”

Section: Litigation Risk Judicial Transparency and Dando Insurancementioning

confidence: 99%

Litigation Risk, Judicial Transparency and Directors’ and Officers’ Liability Insurance

Zhao¹,

Hu²,

Xing³

2016

JFRM

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Using a sample of listed companies in China from 2009 to 2014, this paper investigates relation between litigation risk and the directors' and officers' liability insurance (D&O insurance). The research results show that the higher the risk of litigation, the stronger motivation of the company to buy the D&O insurance, and the judicial transparency has positive moderating effect on the above relationship. It is found that the demand of D&O is influenced by the previous company's litigation risk and the continuous purchase of the D&O insurance could be promoted by the company's litigation. Our study enriched the D&O insurance demand motive theory, the research conclusion for the D&O insurance in the development of our country and popularity to provide policy and suggestions for reference.

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D&O insurance and IPO performance: What can we learn from insurers?

Cited by 59 publications

References 27 publications

Directors' and Officers' Liability Insurance, Corporate Risk and Risk Taking: New Panel Data Evidence on The Role of Directors' and Officers' Liability Insurance

Directors' and Officers' Liability Insurance, Corporate Risk and Risk Taking: New Panel Data Evidence on The Role of Directors' and Officers' Liability Insurance

Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies

Litigation Risk, Judicial Transparency and Directors’ and Officers’ Liability Insurance

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