D<scp>IRECTORS’ AND </scp> O<scp>FFICERS’ </scp> L<scp>IABILITY </scp> I<scp>NSURANCE AND </scp> F<scp>IRM </scp> V<scp>ALUE</scp>

Hwang, Joon Ho; Kim, Byungmo

doi:10.1111/jori.12136

Cited by 36 publications

(9 citation statements)

References 126 publications

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“…However, there is no consensus in the literature about the effects of insurance on companies. Some research identify beneficial effects of D&O insurance for the company (Holderness, 1990;Hwang & Kim, 2018;Mayers & Smith, 1982), research that identify harmful effects (Chalmers, Dann, & Harford, 2002;Jia & Tang, 2016;Lin et al, 2011;Zou, Wong, Shum, Xiong, & Yan, 2008) and research that identify both (Boyer & Tennyson, 2015;Liao & Li, 2017).…”

Section: Dando Insurance and Corporate Governancementioning

confidence: 99%

“…There is important both actuarial and accounting literature in which it is usual to empirically address the factors associated with the demand for D&O insurance and its role in corporate governance (Gillan & Panasian, 2015;Hwang & Kim, 2018;Jia & Tang, 2016;Lin, Officer, & Zou, 2011). However, even in the United States, where the insurance industry underwrites more than US$ 5 billion in annual D&O insurance premiums only, there is a lack of research examining the insurance supply's side (Born & Klimaszewski-Blettner, 2013;Fier & Liebenberg, 2014).…”

Section: Introduction Introductionmentioning

confidence: 99%

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Operação Lava Jato: Impactos no Mercado Segurador de Responsabilidade Civil de Executivos

Rensi

Carvalho

2021

Rev. adm. contemp.

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Context: triggered in 2014, the Car Wash Operation (CWO) belongs to a process of changing the legal context, in the sense of greater responsibility and penalization of public and private companies’ decision makers for acts practiced in the exercise of their functions, object of the Directors’ and Officers’ liability insurance coverage (D&O). Objective: to evaluate the relationship between the growth in the revenues of D&O insurance premiums and the developments of the OCW in Brazil, under the hypothesis of a change in the perception of economic agents exposed to risks covered by D&O insurance, in a process known as probability updating. Methods: official monthly data for all active insurers, arranged longitudinally between 2003 and 2017, and using two-stage regression method for panel data. Results: the OCW had a positive effect not only to the probability of offering this type of insurance, but also to increase the volume of D&O premiums; these results are consistent with the probability-updating hypothesis. Conclusion: the OCW resulted in an increase in revenues of D&O premiums, but there was a negative relationship between OCW and the entire insurance market, suggesting significance of this operation in the sector retraction observed since its outbreak.

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Section: Dando Insurance and Corporate Governancementioning

confidence: 99%

Section: Introduction Introductionmentioning

confidence: 99%

Operação Lava Jato: Impactos no Mercado Segurador de Responsabilidade Civil de Executivos

Rensi

Carvalho

2021

Rev. adm. contemp.

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“…Large companies in the U.K. that purchase D&O insurance are associated with higher share price risks and less managerial ownership than companies whose directors and officers are uninsured (O'Sullivan 2002). D&O insurance increases firm value, which is noticeable among firms with great growth opportunities in South Korea (Hwang and Kim 2015). Chen (2016) justified Taiwan's requirement of disclosing information on D&O insurance by providing statistical evidence that such information can signify the quality of the governance of insured corporations.…”

Section: Introductionmentioning

confidence: 99%

Directors and officers liability insurance and default risk

Huang

2021

Geneva Pap Risk Insur Issues Pract

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This paper investigates the effects of directors and officers (D&O) liability insurance on default risk. Using unique panel data of non-financial listed firms in Taiwan from 2010 to 2017, the empirical results indicate that D&O insurance exerts a significantly positive influence on firms' expected default frequency (EDF), controlling for the endogeneity of D&O insurance coverage and fixed effects. Further analyses reveal that such an effect exists particularly among firms with a high D&O insurance coverage ratio. Firms with D&O insurance have higher default risk than those without. Our findings differ from those in the existing literature by showing that D&O insurance coverage reflects firms' EDF and by capturing more insight on firms' EDF (market value, stock return volatility and firm asset volatility). The evidence indicates that D&O insurance may serve as a real-time, publicly observable signal of default risk for insurers and investors, enabling better contracting and risk management.

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“…In a recent study, Kalelkar and Nwaeze () find that abnormal D&O insurance coverage is positively associated with current and future profit performance, but they do not address the question of how normal D&O insurance coverage affects firm value. Using a sample of Korean listed firms, Hwang and Kim () find that the purchase of D&O insurance improves firm value. However, their study does not examine how the level of D&O insurance coverage affects firm value.…”

Section: Introductionmentioning

confidence: 99%

“…() use market capitalization as a measure of firm value, Duchin et al. () and Schmidt and Fahlenbrach () use stock return (i.e., percentage change of stock price) as a measure of change in firm value, and Hwang and Kim () and Fauver et al. () use Tobin's Q as a measure of firm value.…”

mentioning

confidence: 99%

Inherent Virtue or Inevitable Evil: The Effects of Directors' and Officers' Insurance on Firm Value

Fung¹,

Yeh²

2018

Risk Manage Insurance Review

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Whether directors' and officers' (D&O) insurance improves firm 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.Extract from the judgment for the court case Fox v, Gadsden (2003) NSWSC 748

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DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE AND FIRM VALUE

Cited by 36 publications

References 126 publications

Operação Lava Jato: Impactos no Mercado Segurador de Responsabilidade Civil de Executivos

Operação Lava Jato: Impactos no Mercado Segurador de Responsabilidade Civil de Executivos

Directors and officers liability insurance and default risk

Inherent Virtue or Inevitable Evil: The Effects of Directors' and Officers' Insurance on Firm Value

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