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

Journal of Risk and Insurance, Forthcoming

48 Pages Posted: 21 Jan 2015 Last revised: 1 Feb 2017

See all articles by Ning Jia

Ning Jia

Tsinghua University - School of Economics & Management

Xuesong Tang

Southwestern University of Finance and Economics

Date Written: October 20, 2016

Abstract

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 dataset, 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.

Keywords: directors’ and officers’ liability insurance; independent director; meeting attendance; content analysis; busyness

JEL Classification: G34; G22; M41

Suggested Citation

Jia, Ning and Tang, Xuesong, Directors' and Officers' Liability Insurance, Independent Director Behavior and Governance Effect (October 20, 2016). Journal of Risk and Insurance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2552531 or http://dx.doi.org/10.2139/ssrn.2552531

Ning Jia (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Xuesong Tang

Southwestern University of Finance and Economics ( email )

China

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