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Is corporate governance risk valued? Evidence from directors' and officers' insurance

M. Martin Boyer () and Léa H. Stern

Journal of Corporate Finance, 2012, vol. 18, issue 2, 349-372

Abstract: We find that common equity firms pay lower D&O insurance premiums than income trusts, an alternative and riskier ownership form. This result has wide-ranging implications for investors insofar as the information provided by D&O insurers provides investors with an unbiased signal of the firm's governance risk. The signal is unbiased because it comes from an entity (i.e. the insurer) that has a direct financial incentive to correctly assess an organization's governance risk, in contrast to other ad hoc governance measures and indices.

Keywords: Corporate governance; D&O insurance; Initial public offerings; Income trusts (search for similar items in EconPapers)
JEL-codes: G34 G22 J44 G32 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.jcorpfin.2011.12.005

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Handle: RePEc:eee:corfin:v:18:y:2012:i:2:p:349-372