Directors' and Officers' Liability Insurance and the Cost of Debt

Ching-Chieh Tsai, Jo-Lan Liu, Yu-Ching Liu, Chen-Wei Hao
2017 Journal of Economics Business and Management  
This study examines whether the purchase of directors' and officers' (hereafter D&O) liability insurance coverage plays a monitoring or a managerial opportunism role in the cost of debt for the firms listed in Taiwan for the period from 2008 to 2015. The empirical results reveal a negative association between D&O liability insurance coverage and the cost of debt and implying that D&O liability insurance plays a monitoring role for Taiwanese firms. Overall, our evidence is consistent with the
more » ... sistent with the notion that D&O liability insurance insulates D&Os from the discipline effect of shareholder litigation, leading to a decrease in the cost of debt. Index Terms-Directors' and officers' liability insurance, the cost of debt, managerial opportunism, Heckman two-stage approach.
doi:10.18178/joebm.2017.5.7.524 fatcat:j3suityfurhpddvehoqswj2aeu