Directors’ and Officers’ Liability Insurance and Firm Performance: Evidence from Taiwan

Yi Bingsheng (), Chen Chia-wei and Lin Barry
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Yi Bingsheng: Accounting, Finance & Economics, California State University Dominguez Hills, 1000 E Victoria St, SBS C327, Carson, CA90747, USA
Chen Chia-wei: Tunghai University, Taichung, Taiwan
Lin Barry: Technology and Research, Khalifa University of Science, Abu Dhabi, United Arab Emirates

Asia-Pacific Journal of Risk and Insurance, 2018, vol. 12, issue 2, 15

Abstract: Using a sample of 5,752 Taiwanese firm-year observations over the 2008 to 2012 period, we examine whether and how the existence of D&O insurance may affect firm performance. Our results suggest that whether to purchase D&O insurance is an endogenous corporate behavior, D&O insurance is not significantly related to firm performance. In addition, we find that firms with higher cash ratio, larger and more independent board are more likely to purchase the D&O insurance, while older firms are less likely to buy the D&O insurance. Our study implies that the government should not require firms to buy the D&O insurance. Instead, government should allow firms themselves to decide whether they optimally should purchase D&O insurance or not based on each firm’s particular circumstances. Firms should also not just simply follow their peers to buy the D&O insurance. They should carefully compare the benefits and costs of the D&O insurance based on their own situations, and only buy the insurance when the benefits exceed the costs.

Keywords: D&O insurance; firm performance; Tobin’s Q; market to book ratio; corporate governance (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/apjri-2017-0025

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