Managerial overconfidence and directors' and officers' liability insurance

Yi-Hsun Lai and Vivian W. Tai

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: The study investigates how CEO overconfidence impacts a firm's decisions on directors and officers (D&O) liability insurance over the 2008–2014 period for nonfinancial firms listed on the Taiwan Stock Exchange. We find that the effect of CEO overconfidence on the D&O insurance decision is significantly different between family and nonfamily controlled firms. Family firms with overconfident CEOs have higher demand for D&O insurance, particularly when the CEOs are family members. In contrast, nonfamily firms with overconfident CEOs tend to purchase less D&O insurance. These results are robust to the consideration of endogeneity concerns, and to alternative measures of family-controlled firms, CEO overconfidence, and D&O insurance coverage. This study provides the first empirical evidence regarding the role of managerial overconfidence in corporate D&O insurance decisions.

Keywords: Overconfidence; D&O liability insurance; Family control (search for similar items in EconPapers)
JEL-codes: D22 G32 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x17301816

DOI: 10.1016/j.pacfin.2018.08.005

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