On the Corporate Demand for Directors' and Officers' Insurance

J. OF RISK AND INSURANCE, Vol. 64 No. 1, March 1997

Posted: 8 Jul 1997

See all articles by John E. Core

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Abstract

Using data on directors' and officers' insurance policies gathered from a sample of Canadian firms, this article examines the determinants of firms' demand for D&O insurance. Firms with greater litigation risk are more likely to purchase insurance and carry higher limits and deductibles. The data do not support the hypothesis that director cash compensation substitutes for D&O insurance. Consistent with the hypotheses of Mayers and Smith (1982, 1987), firms with greater distress probability and utilities are more likely to purchase insurance and carry higher limits. However, firms with greater inside shareownership are less likely to purchase insurance and carry lower limits. Firms with greater inside voting control are more likely to purchase insurance and carry higher limits.

JEL Classification: G22, G32, G39

Suggested Citation

Core, John E., On the Corporate Demand for Directors' and Officers' Insurance. J. OF RISK AND INSURANCE, Vol. 64 No. 1, March 1997, Available at SSRN: https://ssrn.com/abstract=8407

John E. Core (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02138
United States

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