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Does size and book-to-market contain intangible information about managerial incentives? Learning from corporate D&O insurance purchase

Rachel Huang (), Vivian Jeng, Cheng-Wei Wang and Jack C. Yue

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: Using 2008–2018 data for all publicly-listed firms in Taiwan, this paper tests for asymmetric information in the Directors' and Officers' (D&O) liability insurance market. We argue that size and book-to-market ratio contain information such as managerial risk preferences and their intention to reduce litigation risk. Our results show that a negative relationship exists between litigation risk and insurance purchase among small and low book-to-market firms. Our findings pinpoint out the importance of using size and the book-to-market ratio when detecting asymmetric information in the corporate level.

Keywords: Size; Book-to-market; Directors' and officers' liability insurance; Advantageous selection; Intangible information; Adverse selection (search for similar items in EconPapers)
JEL-codes: C30 D80 G22 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.pacfin.2021.101560

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