Directors’ and officers’ liability insurance and analyst forecast properties

Narjess Boubakri and Lobna Bouslimi

Finance Research Letters, 2016, vol. 19, issue C, 22-32

Abstract: We examine whether Directors and Officers (D&O) Insurance purchases around equity issues is priced information. Our results support the managerial opportunism hypothesis that the purchase of insurance is a signal of increased litigation risk and agency costs. At the time of equity issues, financial analysts are less optimistic about the future earnings of firms that purchase the insurance in comparison to firms that do not purchase it. We also find that financial analysts’ optimism is less pronounced for insured firms that increase their coverage. These results are robust to different measures of financial analysts’ forecasts and other checks.

Keywords: Directors and officers’liability insurance; Analysts’forecast error; Managerial opportunism; Corporate governance (search for similar items in EconPapers)
JEL-codes: G24 G32 G34 J44 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:19:y:2016:i:c:p:22-32

DOI: 10.1016/j.frl.2016.05.010

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