• ISSN: 2301-3567 (Print), 2972-3981 (Online)
    • Abbreviated Title: J. Econ. Bus. Manag.
    • Frequency: Quarterly
    • DOI: 10.18178/JOEBM
    • Editor-in-Chief: Prof. Eunjin Hwang
    • Executive Editor: Ms. Fiona Chu
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HOME > Archive > 2017 > Volume 5 Number 7 (Jul. 2017) >
JOEBM 2017 Vol.5(7): 266-271 ISSN: 2301-3567
DOI: 10.18178/joebm.2017.5.7.524

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

Ching-Chieh Tsai, Jo-Lan Liu, Yu-Ching Liu, and Chen-Wei Hao

Abstract— 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 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.

Ching-Chieh Tsai, Jo-Lan Liu, Yu-Ching Liu, Chen-Wei Hao are with the Accounting Information Department, National Taichung University of Science and Technology, Taichung, Taiwan (e-mail: tcc57@ nutc.edu.tw, lrl@ nutc.edu.tw, guo622@gmail.com, hewei820801@gmail.com).

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Cite: Ching-Chieh Tsai, Jo-Lan Liu, Yu-Ching Liu, and Chen-Wei Hao, " Directors’ and Officers’ Liability Insurance and the Cost of Debt," Journal of Economics, Business and Management vol. 5, no. 7, pp. 266-271, 2017.

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