Effects of directors and officers liability insurance on accounting restatements

Weng, Tzu-Ching; Chen, Guang-Zheng; Chi, Hsin‐Yi

doi:10.1016/j.iref.2017.02.010

Cited by 22 publications

(10 citation statements)

References 57 publications

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“…Empirically, it is reported that US firms are charged more for D&O insurance coverage if they have lower earnings quality or prior accounting restatements (Cao & Narayanamoorthy, 2014). In Taiwan, firms with D&O insurance are positively associated with overinvestment but negatively associated with investment efficiency (Li & Liao, 2014), and D&O insurance increases the likelihood of restating financial statements (Weng, Chen & Chi, 2017), internal control weakness (Chen & Keung, 2018) and the number of key audit matters (KAMs) disclosed by auditors (Lin et al, 2020), and it also weakens the sensitivity of directors' compensation to firm performance (Wang & Chen, 2016). Canadian listed firms with D&O insurance have experienced an increase in the cost of equity and a negative market reaction to increased insurance coverage (Chen, Li & Zou, 2016), increased loan spread (Lin et al, 2013), higher audit fees (Chung et al, 2015), aggressive tax reporting activities (Zeng, 2017) and lower earnings conservatism (Chung & Wynn, 2008), as well as lower announcement period abnormal stock returns during merger and acquisition transactions with significantly higher acquisition premiums but lower post-acquisition business synergies (Lin et al, 2011).…”

Section: Epu and Dando Insurancementioning

confidence: 99%

Why do firms purchase directors' and officers' liability insurance? – perspective from economic policy uncertainty

Jiang

Jia

2022

CAFR

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PurposeThis study aims to investigate whether firms purchase directors' and officers' liability (D&O) insurance when the country-level economic policy uncertainty (EPU) is high.Design/methodology/approachThis study uses D&O insurance data from Chinese listed firms between 2003 and 2019 to conduct regression analyses to examine the association between D&O insurance and EPU.FindingsThe results show that government EPU, despite being an exogenous factor, increases the likelihood of firms' purchasing D&O insurance, and this effect is more pronounced when firms are exposed to great share price crash risk and high litigation risk, suggesting that firms intend to purchase D&O insurance possibly due to the accentuated stock price crash risk and litigation risk associated with EPU. In addition, the results indicate that the effect of EPU on the D&O insurance purchase decision is moderated by the provincial capital market development and internal control quality.Practical implicationsThe study highlights the role of uncertain economic policies in shareholder approval of D&O insurance purchases.Originality/valueThe study enriches the literature on the determinants of D&O insurance purchases by documenting novel evidence that country-level EPU is a key institutional factor shaping firms' decisions to purchase D&O insurance.

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Section: Epu and Dando Insurancementioning

confidence: 99%

Why do firms purchase directors' and officers' liability insurance? – perspective from economic policy uncertainty

Jiang

Jia

2022

CAFR

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“…23 In most Western countries, such as the U.S., U.K. and Canada, the majority of listed firms are covered by D&O insurance O'Sullivan 2002). Ninety-five percent of Fortune 500 companies hold D&O insurance policies in the U.S. (Egger et al 2015), but information on D&O insurance coverage in the U.S. does not have to be publicly disclosed (Weng et al 2017). 21 Liability exclusions include the dishonest, criminal or fraudulent conduct of directors and officers; fines; penalties and punitive damages; and wilful or intentional wrongdoing.…”

Section: Discussionmentioning

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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“…The return on assets (ROA) is a financial ratio many researchers employ to assess how well management uses a company's total resources to generate earnings [18][19][20][21][22][23][24][25][26][27]. Return on equity (ROE), which measures profit earned with the money shareholders have invested, is a similar measure [18,19,[21][22][23][24][25][28][29][30][31].…”

Section: Methodsmentioning

confidence: 99%

“…Studies employing the DE ratio to indicate insurance companies' financial stability have found that the ones with higher DE levels put their liquidity at risk [18,[21][22][23]25,27,31,34,36]. Consequently, investors, creditors, and other stakeholders rely on this ratio to analyse how well a given company would be able to fulfill its debt obligations in the event of an insured natural catastrophe or liquidation.…”

Section: Methodsmentioning

confidence: 99%

Thai Non-Life Insurance Companies’ Resilience and the Historic 2011 Floods: Some Recommendations for Greater Sustainability

Terdpaopong

Rickards

2021

Sustainability

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The severe flooding occurring in parts of Thailand in 2011 constituted the fifth most costly catastrophe worldwide during the past 31 years. Many businesses suffered either directly or indirectly. A sharp downturn in the country’s economy resulted, with Thai non-life insurance companies’ annual losses totaling USD 4.1 bn. Focusing first on changes in their key performance indicators (KPIs) as evidence of their financial resilience, this study analyses data for 58 companies from 2008–2010 (years prior to the flooding), 2011 (the flood year), and 2012–2014 (the immediate post-flood years). Descriptive and inferential statistics depict differences in firm characteristics and key performance indicators between these periods. The findings show that: (1) not surprisingly, the floods had a major impact on Thai non-life insurance companies’ finances; and (2) even after two years, they still had not recovered fully. Then, employing Data Envelopment Analysis (DEA), the study assesses the relative efficiency of 58 Thai non-life insurance companies in using their assets to generate operating profit. The evidence indicates that: (1) larger insurance companies are more efficient than smaller ones in this regard; and (2) almost all the entities examined performed less efficiently during the post-flood years than in earlier periods. These results serve as the basis for recommendations to Thai non-life insurance companies, government policymakers, and future researchers. Although Thai non-life insurance companies survived the challenges they faced during the study period, implementation of the measures recommended here likely would boost their technical efficiency and financial resilience, thereby facilitating their ability to operate more sustainably in the long run.

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Effects of directors and officers liability insurance on accounting restatements

Cited by 22 publications

References 57 publications

Why do firms purchase directors' and officers' liability insurance? – perspective from economic policy uncertainty

Why do firms purchase directors' and officers' liability insurance? – perspective from economic policy uncertainty

Directors and officers liability insurance and default risk

Thai Non-Life Insurance Companies’ Resilience and the Historic 2011 Floods: Some Recommendations for Greater Sustainability

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