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Co-opted boards and directors' and officers' liability insurance

Author

Listed:
  • Tai, Vivian W.
  • Lai, Yi-Hsun
  • Chang, Wen-Feng

Abstract

We examine the effect of co-opted boards on directors' and officers' liability insurance (D&O insurance). Co-opted directors are those appointed after the CEO assumed office. Using a sample of non-financial listed firms in Taiwan from 2008 to 2018, we find that a one standard deviation increase in the proportion of co-opted directors on a board leads to approximately 5% increase in the probability and coverage ratio of D&O insurance. The results are robust to a series of sensitivity tests accounting for potential endogeneity concerns and alternative measures of D&O liability insurance and co-opted boards. Additionally, we find that the demand for D&O insurance increases as the proportion of both co-opted independent and co-opted non-independent directors increases. Moreover, the positive relationship between co-opted directors and the demand for D&O insurance is more pronounced in family firms and firms with higher managerial entrenchment and weaker external governance. These results provide valuable insights for insurers' product design and for regulators in formulating policies related to board structure.

Suggested Citation

  • Tai, Vivian W. & Lai, Yi-Hsun & Chang, Wen-Feng, 2026. "Co-opted boards and directors' and officers' liability insurance," Pacific-Basin Finance Journal, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:pacfin:v:98:y:2026:i:c:s0927538x26000910
    DOI: 10.1016/j.pacfin.2026.103145
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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