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Directors' and officers' liability insurance and acquisition outcomes

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Author Info

  • Lin, Chen
  • Officer, Micah S.
  • Zou, Hong

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 102 (2011)
Issue (Month): 3 ()
Pages: 507-525

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Handle: RePEc:eee:jfinec:v:102:y:2011:i:3:p:507-525

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Directors' and officers' liability insurance; Mergers and acquisitions;

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References

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Citations

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Cited by:
  1. M. Martin Boyer, 2012. "Insurer Information, Insiders and Initial Public Offering," CIRANO Working Papers 2012s-30, CIRANO.
  2. Lin, Chen & Officer, Micah S. & Wang, Rui & Zou, Hong, 2013. "Directors' and officers' liability insurance and loan spreads," Journal of Financial Economics, Elsevier, vol. 110(1), pages 37-60.

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