Does size and book-to-market contain intangible information about managerial incentives? Learning from corporate D&O insurance purchase
Rachel Huang (),
Cheng-Wei Wang and
Jack C. Yue
Pacific-Basin Finance Journal, 2021, vol. 68, issue C
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21000676
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