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Is the Demand for Corporate Insurance a Habit? Evidence of Organizational Inertia from Directors' and Officers' Insurance

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M. Martin Boyer ()

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Abstract

Of the many fundamental questions left unanswered in finance, one relates to corporate risk management practices. My contention in this paper is that managerial habits and organizational inertia play an important role in the decision to purchase corporate insurance and engage in risk management activities. Because public access to corporate insurance purchases and risk management strategies is limited, I examine a particular aspect of the corporate demand for insurance for which public information is available: Directors' and officers' insurance. My results show that some measure of organizational inertia is an important determinant of the demand for insurance. This raises the interesting question of how big of a role does managerial habit and corporate inertia play in the firm's overall risk management strategy?

De toutes les questions fondamentales qui demeurent en finance, celle que j'adresse dans ce document est liée à la gestion du risque au sein des entreprises. L'hypothèse que j'élabore dans cette étude est que les habitudes des dirigeants et l'inertie organisationnelle contribuent aux décisions d'achat d'assurance et de gestion des risques par les entreprises. Puisqu'il est impossible d'obtenir des données publiques sur la gestion des risques et l'achat d'assurance par les entreprises, j'examine un aspect particulier de cette demande d'assurance pour laquelle l'information existe : l'assurance de la responsabilité civile des administrateurs et des dirigeants. Les résultats que je présente supportent l'hypothèse selon laquelle les habitudes et l'inertie organisationnelle contribuent à la fonction de demande d'assurance des administrateurs et des dirigeants. Mes résultats soulèvent la question des rôles que jouent les habitudes des dirigeants et l'inertie organisationnelle dans les stratégies plus globales de gestion des risques d'une entreprise.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2004s-33.

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Date of creation: 01 May 2004
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Handle: RePEc:cir:cirwor:2004s-33

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Keywords: directors' and officers' insurance; habit formation; corporate insurance and risk management; board compensation; assurance de la responsabilité civile des administrateurs et des dirigeants; formation d'habitudes; assurances et gestion des risques des entreprises; rémunération des conseils d'administration;

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Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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