• Influence of Directors’ and Officers’ Liability Insurance on Breadth of Ownership and Corporate Value

Abstract

This study investigated the effect of directors’ and officers’ liability insurance (D&O insurance) on the breadth of ownership and corporate value. Our empirical results using public data for the period 2008 to 2012 indicate that D&O insurance exerts a significantly positive influence on a firm’s breadth of ownership by increasing the number of shareholders and promoting a willingness to invest. Evidence from both financial and accounting perspectives indicates that the purchase of D&O insurance can significantly increase the corporate value of a firm. To enhance the robustness of the empirical results, we provided additional evidence (both direct and indirect) using the instrument variables method, difference in differences, sample grouping, and performance in corporate governance. Our results confirm that the policy of demanding a declaration of D&O insurance by listed and overthe- counter corporations is beneficial to the investing public by helping them to identify reliable corporations in which to invest.

Keywords: D&O insurance, breadth of ownership, corporate value, differences in differences, corporate governance