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.