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

Ning Jia and Xuesong Tang

Journal of Risk & Insurance, 2018, vol. 85, issue 4, 1013-1054

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 data set, 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.

Date: 2018
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