Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies

Peter Egger, Doina Radulescu and Ray Rees

Journal of Risk & Insurance, 2015, vol. 82, issue 4, 823-852

Abstract: type="main" xml:lang="en">

This article introduces a new rationale for the existence of “directors’ and officers” (D&O) insurance. We use a model with volatile stock markets where shareholders design compensation schemes that incentivize managers to stimulate short-term increases in stock prices that do not maximize long-run stock market value. We show that D&O insurance provides a convenient instrument for the initial shareholders of a company to take advantage of differences in beliefs between insiders and outsiders in capital markets. The empirical results support the idea that both the insurance coverage and the premium are higher in the presence of new shareholders and volatile markets. The results prove robust in various empirical model specifications.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/ (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:82:y:2015:i:4:p:823-852

Ordering information: This journal article can be ordered from
http://www.wiley.com/bw/subs.asp?ref=0022-4367

Access Statistics for this article

Journal of Risk & Insurance is currently edited by Joan T. Schmit

More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().