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The Effects of Directors’ and Officers’ Liability Insurance on Key Auditing Matters

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  • Chaohsin Lin
  • Shuofen Hsu
  • Pai-Lung Chou
  • Ya-Yi Chao
  • Chao-Wei Li

Abstract

The purpose of this paper is to examine the impact of directors’ & officers’ (D&O) liability insurance on the number of key audit matters (KAMs) presented in the company’s financial statements, which are employed as a measure of the risk from the corporate governance of firms. Our empirical results show a significant positive relationship between the number of KAMs and the amount of D&O liability insurance. Our findings suggest that although D&O liability insurance may provide directors and supervisors with important protection, it may also lead to increased moral hazard. As a result, a relatively large number of KAMs are disclosed by the auditor in accordance with increased operating risk after the D&O liability insurance is purchased.

Suggested Citation

  • Chaohsin Lin & Shuofen Hsu & Pai-Lung Chou & Ya-Yi Chao & Chao-Wei Li, 2020. "The Effects of Directors’ and Officers’ Liability Insurance on Key Auditing Matters," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(5), pages 977-1002, April.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:5:p:977-1002
    DOI: 10.1080/1540496X.2019.1705782
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    Cited by:

    1. Xia, Changyuan & Yang, Junjie & Yang, Zeng & Chan, Kam C., 2023. "Do directors with foreign experience increase the corporate demand for directors' and officers' liability insurance? Evidence from China," Economic Modelling, Elsevier, vol. 119(C).

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