Directors' and officers' liability insurance and stock price crash risk

Yuan, Rongli; Sun, Jie; Cao, Feng

doi:10.1016/j.jcorpfin.2015.12.015

Cited by 214 publications

(207 citation statements)

References 62 publications

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“…Callen and Fang () find that more stable institutional investors and high levels of religiosity, respectively, constrain managerial bad news hoarding behavior, leading to lower future instances of stock price crash. Further, auditor quality (Robin & Zhang, ), auditor‐provided tax services (Habib & Hasan, ), accounting conservatism (Andreou, Cooper, Louca, & Philip, ; Kim & Zhang, ), efficient governance (Andreou et al, ), and directors’ and officers’ insurance (Yuan et al, ) are found to attenuate crash risk. Moreover, Srinidhi and Liao () demonstrate that family‐controlled firms tend to crash less than nonfamily‐controlled firms due to a greater alignment of interests between investors and managers in family firms.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…First, our study is relevant to the literature on the determinants of stock price crash risk. Prior research primarily relates stock price crash risk to various market‐level and firm‐level factors (Andreou et al, ; Callen & Fang, ; Kim et al, ; Kim & Zhang, ; Yuan, Sun, & Cao, ). Our evidence suggests that as CBDs play a monitoring role in the firm, managers are disincentivized to hide negative information about the firm, resulting in fewer occurrences of stock price crashes ex ante .…”

Section: Introductionmentioning

confidence: 99%

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Do bankers on the board reduce crash risk?

Kang

Kim

Liao

2019

Euro Fin Management

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Commercial banker-directors (CBDs) bring both financial expertise in risk management and conflicts of interest between shareholders and debtholders. The burgeoning literature on stock price crash risk generates important questions of whether CBDs reduce crash risk.Using BoardEx data from 1999 to 2009, we find supporting evidence that the firms with CBDs experience lower stock price crash risk. Moreover, the reduction of crash risk is more pronounced for highrisk firms under the monitoring of affiliated bankerdirectors. The results of this study are robust to the Heckman selection model, propensity score matching, and alternative measures of crash risk.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Do bankers on the board reduce crash risk?

Kang

Kim

Liao

2019

Euro Fin Management

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“…4 An indicator variable might not be appropriate to measure stock price crash risk, because in China, the price limiting mechanism limits the range of daily fluctuations of stock price within 10 percent. All the prior studies based on China's listed firms do not adopt such an indicator variable to measure crash risk (e.g., Xu et al, 2014;Yuan et al, 2016;Zhang, Xie, & Xu, 2015). 5 We also explore the moderating effect of state ownership on the relationship between the reform and crash risk.…”

Section: Economic Mechanisms Between the Reform And Crash Riskmentioning

confidence: 99%

“…First, to the best of our knowledge, this study constitutes the first effort to explore a new determinant of stock price crash risk from the perspective of principal-principal agency problems. Prior studies have documented several factors that affect stock price crash risk, including mandatory adoption of International Financial Reporting Standards (IFRS) (DeFond et al, 2015), religion (Callen & Fang, 2015), tax avoidance (Kim et al, 2011a), equity incentives (Kim et al, 2011b), financial analysts (Xu, Jiang, Chan, & Yi, 2013), institutional investors (An & Zhang, 2013;Callen & Fang, 2013), financial reporting opacity (Kim & Zhang, 2014), accounting conservatism (Kim & Zhang, 2016), management excess perks (Xu et al, 2014), and directors' and officers' liability insurance (Yuan et al, 2016). Unlike the prior studies, our study focuses on controlling shareholders' self-interest incentives, and with the perspective of principal-principal agency problems we explore the impact of the reform in China on stock price crash risk.…”

mentioning

confidence: 99%

Principal–principal agency problems and stock price crash risk: Evidence from the split‐share structure reform in China

Sun

Yuan

Cao

et al. 2017

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: On April 2005, the China Securities Regulatory Commission (CSRC) launched the split-share structure reform to mitigate principal-principal agency problems.Using the reform as an exogenous shock, we examine the impact of principal-principal agency problems on stock price crash risk. Specifically, this study attempts to answer two questions:(1) Does the split-share structure reform in China decrease stock price crash risk? (2) Is the above effect induced by the mitigation of principal-principal agency problems?Research Findings/Insights: We find that the reform induces a significant decrease in crash risk after controlling for other predictors of crash risk, and this effect is more pronounced in firms with a higher proportion of shares held by controlling shareholders. Moreover, we find that the negative impact of the reform on stock price crash risk is more pronounced in firms with a high level of tunneling prior to the reform, which indicates that reform induces less tunneling, and adversely affects crash risk.Theoretical/Academic Implications: This study contributes to the literature in two ways.First, this study constitutes the first effort to explore the determinants of stock price crash risk from the perspective of principal-principal agency problems. Second, this study enriches the growing literature on the economic consequences of the split-share structure reform in China.Practitioner/Policy Implications: We draw two important implications from our results.First, our findings highlight that regulatory intervention is an important way to enhance corporate governance. This is particularly beneficial in China, a transitional economy which may lag in terms of general protection of investors and information disclosure. Second, this study also confirms that minority shareholders and listed firms benefit from the reform. Both are crucial to the healthy development of the capital market in China. KEYWORDScorporate governance, non-tradable shares, principal-principal agency problems, split-share structure, stock price crash risk

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“…Donley and Kent () conclude that D&O liability insurance has become an integral part of corporate governance in Canada. Yuan, Sun, and Cao () find evidence that D&O insurance in China is effective in reducing the stock price crash risk.…”

Section: Introductionmentioning

confidence: 99%

Directors’ and Officers’ Liability Insurance, Independent Director Behavior, and Governance Effect

Jia

Tang

2016

J of Risk & Insurance

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We examine the effect of directors’ and officers’ liability insurance (D&O insurance) on the behavior of independent directors and the effectiveness of their governance role. Using a unique data set, we find a negative relation between D&O insurance and personal board meeting attendance by independent directors and a positive relation between D&O insurance and meeting attendance by authorized representatives. Content analysis of independent director opinion reports indicates that D&O insurance encourages independent directors to behave less responsibly. Insured independent directors are also more likely to be busy. Collectively, D&O insurance reduces the effectiveness of independent directors in corporate governance.

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Directors' and officers' liability insurance and stock price crash risk

Cited by 214 publications

References 62 publications

Do bankers on the board reduce crash risk?

Do bankers on the board reduce crash risk?

Principal–principal agency problems and stock price crash risk: Evidence from the split‐share structure reform in China

Directors’ and Officers’ Liability Insurance, Independent Director Behavior, and Governance Effect

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