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Directors’ and officers’ liability insurance and analyst forecast properties

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  • Boubakri, Narjess
  • Bouslimi, Lobna

Abstract

We examine whether Directors and Officers (D&O) Insurance purchases around equity issues is priced information. Our results support the managerial opportunism hypothesis that the purchase of insurance is a signal of increased litigation risk and agency costs. At the time of equity issues, financial analysts are less optimistic about the future earnings of firms that purchase the insurance in comparison to firms that do not purchase it. We also find that financial analysts’ optimism is less pronounced for insured firms that increase their coverage. These results are robust to different measures of financial analysts’ forecasts and other checks.

Suggested Citation

  • Boubakri, Narjess & Bouslimi, Lobna, 2016. "Directors’ and officers’ liability insurance and analyst forecast properties," Finance Research Letters, Elsevier, vol. 19(C), pages 22-32.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:22-32
    DOI: 10.1016/j.frl.2016.05.010
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    Cited by:

    1. Eduardo Flores & Marco Fasan & Wesley Mendes‐da‐Silva & Joelson Oliveira Sampaio, 2019. "Integrated reporting and capital markets in an international setting: The role of financial analysts," Business Strategy and the Environment, Wiley Blackwell, vol. 28(7), pages 1465-1480, November.
    2. Su, Xuan-Qi, 2023. "Directors' and Officers' liability insurance and cross section of expected stock returns: A mispricing explanation," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    3. Aguir, Iness & Aguir, Wael, 2020. "Director and officer liability protection and firm value: Unintended consequences," Finance Research Letters, Elsevier, vol. 32(C).
    4. Sophie Wang, Qing & Lai, Shaojie & Pi, Shuwen & Anderson, Hamish, 2022. "Does directors' and officers' liability insurance induce empire building? Evidence from corporate labor investment," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    5. Liao, Tsai-Ling & Chuang, Hwei-Lin & Wang, Jo-Yu, 2022. "Directors' and officers’ liability insurance and the pricing of seasoned equity offerings," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 12-26.

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    More about this item

    Keywords

    Directors and officers’liability insurance; Analysts’forecast error; Managerial opportunism; Corporate governance;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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