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Directors' and officers’ liability insurance and the pricing of seasoned equity offerings

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  • Liao, Tsai-Ling
  • Chuang, Hwei-Lin
  • Wang, Jo-Yu

Abstract

This study examines how financial markets price the information regarding the purchase of directors' and officers’ (D&O) insurance within the context of seasoned equity offerings (SEOs). We find that SEO firms carrying D&O insurance policies or higher insurance coverage experience less negative announcement effects. Further analyses show that the positive association between D&O insurance and SEO announcement effects is more pronounced for firms with higher director ownership but face weaker monitoring from product market competition. The evidence supports that the purchase of D&O insurance can serve as a form of monitoring D&Os, especially when external governance is weak.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:12-26
    DOI: 10.1016/j.iref.2022.02.005
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    Cited by:

    1. Meng-Chi Chueh & Shen-Ho Chang, 2022. "Effects of Directors and Officers Insurance on Earnings Management Strategies: Moderating Role of Restatement Announcements," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 15(1), pages 71-93, July.
    2. Huang, Kuo-Cheng & Wang, Yu-Chun, 2023. "How do investors underreact to seasoned equity offerings? Evidence from Taiwan's corporate governance evaluation," International Review of Financial Analysis, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    Directors' and officers' liability insurance; Seasoned equity offerings; Announcement effects;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • 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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