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Does size and book-to-market contain intangible information about managerial incentives? Learning from corporate D&O insurance purchase

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  • Huang, Rachel J.
  • Jeng, Vivian
  • Wang, Cheng-Wei
  • Yue, Jack C.

Abstract

Using 2008–2018 data for all publicly-listed firms in Taiwan, this paper tests for asymmetric information in the Directors' and Officers' (D&O) liability insurance market. We argue that size and book-to-market ratio contain information such as managerial risk preferences and their intention to reduce litigation risk. Our results show that a negative relationship exists between litigation risk and insurance purchase among small and low book-to-market firms. Our findings pinpoint out the importance of using size and the book-to-market ratio when detecting asymmetric information in the corporate level.

Suggested Citation

  • Huang, Rachel J. & Jeng, Vivian & Wang, Cheng-Wei & Yue, Jack C., 2021. "Does size and book-to-market contain intangible information about managerial incentives? Learning from corporate D&O insurance purchase," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21000676
    DOI: 10.1016/j.pacfin.2021.101560
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    Cited by:

    1. 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).

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    More about this item

    Keywords

    Size; Book-to-market; Directors' and officers' liability insurance; Advantageous selection; Intangible information; Adverse selection;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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