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Asian Review of Financial Research, Vol., No..
pp.19~76
pp.19~76
Directors' and officers' liability insurance and corporate risk-taking
Joon Ho Hwang Korea University Business School
Byungmo Kim College of Business and Economics, Dankook University
This study examines the effect of directors' and officers' liability (D&O) insurance on the firm¡¯s risk-taking behavior and firm value. We utilize a sample of period in Korea during which the disclosure of D&O insurance information was mandatory and there was a significant cross-sectional variation in the firms¡¯ choice to purchase D&O insurance. We find that, controlling for the endogeneity of D&O insurance purchase decision, D&O insurance leads to greater risk-taking behavior of firms and also increases firm value compared to noninsured firms. We find that increases in risk-taking behavior and firm value are pronounced for firms with greater growth opportunities. These results imply that D&O insurance can be beneficial to firms by mitigating the risk-averseness of managers, particularly for highgrowth firms that can benefit more from such change in behavior.
Joon Ho Hwang
Byungmo Kim
This study examines the effect of directors' and officers' liability (D&O) insurance on the firm¡¯s risk-taking behavior and firm value. We utilize a sample of period in Korea during which the disclosure of D&O insurance information was mandatory and there was a significant cross-sectional variation in the firms¡¯ choice to purchase D&O insurance. We find that, controlling for the endogeneity of D&O insurance purchase decision, D&O insurance leads to greater risk-taking behavior of firms and also increases firm value compared to noninsured firms. We find that increases in risk-taking behavior and firm value are pronounced for firms with greater growth opportunities. These results imply that D&O insurance can be beneficial to firms by mitigating the risk-averseness of managers, particularly for highgrowth firms that can benefit more from such change in behavior.
Directors¡¯ and officers¡¯ liability insurance,risk-taking,firm value
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