Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies

Egger, Peter; Radulescu, Doina Maria; Rees, Ray (2015). Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies. The journal of risk and insurance, 82(4), pp. 823-852. Wiley 10.1111/jori.12082

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This paper introduces a new rationale for the existence of “Directors’ and Officers’” (D&O) insurance. We use a model with volatile stock markets where shareholders design compensation schemes that incentivize managers to stimulate short-term increases in stock prices that do not maximize long run stock market value. We show that D&O insurance provides a convenient instrument for the initial shareholders of a company to take advantage of differences in beliefs between insiders and outsiders in capital markets. The empirical results support the idea that both the insurance coverage and the premium are higher in the presence of new shareholders and volatile markets. The results prove robust in various empirical model specifications.

Item Type:

Journal Article (Original Article)

Division/Institute:

11 Centers of Competence > Center of Comptetence for Public Management (KPM)

UniBE Contributor:

Radulescu, Doina Maria

Subjects:

300 Social sciences, sociology & anthropology > 350 Public administration & military science

ISSN:

0022-4367

Publisher:

Wiley

Language:

English

Submitter:

BORIS Import

Date Deposited:

25 Sep 2014 09:47

Last Modified:

29 Jun 2020 14:30

Publisher DOI:

10.1111/jori.12082

JEL Classification:

C230, G220, G300, M520

BORIS DOI:

10.7892/boris.58663

URI:

https://boris.unibe.ch/id/eprint/58663

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