Is skin in the game a game changer? Evidence from mandatory changes of D&O insurance policies

• 成果类型: Article
• 署名作者: Lin, Chen; Officer, Micah S.; Schmid, Thomas; Zou, Hong
• 署名单位: University of Hong Kong; Loyola Marymount University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2019.01.001
• 发表日期: 2019
• 关键词: officers liability insurance; corporate demand; LITIGATION RISK; DIRECTORS; governance; coverage

摘要

This paper examines the incentive effects of a mandatory personal deductible in liability insurance contracts for directors and officers (D&Os). Exploiting a novel German law that mandates personal deductibles for executives, we document positive returns for affected firms around the first announcement of the plan to impose a personal deductible. We also find evidence of long-run effects: affected firms decrease risk taking in operational activities and financial reporting, and improve the quality of takeover decisions. Our study shows that the structure of D&O insurance contracts matters because mandating that D&Os have skin in the game appears to lead to real effects on firm value. (C) 2019 Elsevier B.V. All rights reserved.