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Is corporate governance risk valued? Evidence from directors' and officers' insurance

  • Boyer, M. Martin
  • Stern, Léa H.

We find that common equity firms pay lower D&O insurance premiums than income trusts, an alternative and riskier ownership form. This result has wide-ranging implications for investors insofar as the information provided by D&O insurers provides investors with an unbiased signal of the firm's governance risk. The signal is unbiased because it comes from an entity (i.e. the insurer) that has a direct financial incentive to correctly assess an organization's governance risk, in contrast to other ad hoc governance measures and indices.

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Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 18 (2012)
Issue (Month): 2 ()
Pages: 349-372

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Handle: RePEc:eee:corfin:v:18:y:2012:i:2:p:349-372
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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  1. Lucian A. Bebchuk & Michael S. Weisbach, 2009. "The State of Corporate Governance Research," NBER Working Papers 15537, National Bureau of Economic Research, Inc.
  2. Bradley, Michael & Chen, Dong, 2011. "Corporate governance and the cost of debt: Evidence from director limited liability and indemnification provisions," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 83-107, February.
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  7. Boyer, Martin, 2014. "Directors’ and officers’ insurance and shareholder protection," Journal of Financial Perspectives, EY Global FS Institute, vol. 2(1), pages 107-128.
  8. Core, John E, 2000. "The Directors' and Officers' Insurance Premium: An Outside Assessment of the Quality of Corporate Governance," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 449-77, October.
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