Directors' and officers' liability insurance and acquisition outcomes

Chen Lin, Micah S. Officer and Hong Zou

Journal of Financial Economics, 2011, vol. 102, issue 3, 507-525

Abstract: We examine the effect of directors' and officers' liability insurance (D&O insurance) on the outcomes of merger and acquisition (M&A) decisions. We find that acquirers whose executives have a higher level of D&O insurance coverage experience significantly lower announcement-period abnormal stock returns. Further analyses suggest that acquirers with a higher level of D&O insurance protection tend to pay higher acquisition premiums and their acquisitions appear to exhibit lower synergies. The evidence provides support for the notion that the provision of D&O insurance can induce unintended moral hazard by shielding directors and officers from the discipline of shareholder litigation.

Keywords: Directors' and officers' liability insurance; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G14 G22 G34 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (87)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:102:y:2011:i:3:p:507-525

DOI: 10.1016/j.jfineco.2011.08.004

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