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D&O insurance and IPO performance: What can we learn from insurers?

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

Abstract

We investigate whether a firm’s directors’ and officers’ liability insurance contract at the time of the IPO is related to insured firms’ first year post-IPO performance. We find that insurers charge a higher premium per dollar of coverage to protect the directors and officers of firms that will subsequently have poor first year post-IPO stock performance. A higher price of coverage is also associated with a higher post-IPO volatility and lower Sharpe ratio. Our results are robust to various econometric specifications and suggest that even when the high level of information asymmetry inherent to the IPO context prevails, insurers have information about the firms’ prospects that should be valuable to outside investors.

Suggested Citation

  • Boyer, M. Martin & Stern, Léa H., 2014. "D&O insurance and IPO performance: What can we learn from insurers?," Journal of Financial Intermediation, Elsevier, vol. 23(4), pages 504-540.
  • Handle: RePEc:eee:jfinin:v:23:y:2014:i:4:p:504-540
    DOI: 10.1016/j.jfi.2014.05.001
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:reveco:v:49:y:2017:i:c:p:437-452 is not listed on IDEAS
    2. Yuan, Rongli & Sun, Jian & Cao, Feng, 2016. "Directors' and officers' liability insurance and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 173-192.
    3. repec:eee:reacre:v:29:y:2017:i:1:p:69-74 is not listed on IDEAS

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