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The Directors' and Officers' Insurance Premium: An Outside Assessment of the Quality of Corporate Governance

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  • Core, John E

Abstract

Using a sample of directors' and officers' (D&O) premiums gathered from the proxy statements of Canadian companies, this article examines the D&O premium as a measure of ex ante litigation risk. I find a significant association between D&O premiums and variables that proxy for the quality of firms' governance structures. The association between the proxies for governance structure quality and D&O premiums is robust to a number of alternative specifications. This article provides confirmatory evidence that the D&O premium reflects the quality of the firm's corporate governance by showing that measures of weak governance implied by the D&O premium are positively related to excess CEO compensation. The overall results suggest that D&O premiums contain useful information about the quality of firms' governance. Copyright 2000 by Oxford University Press.

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  • Core, John E, 2000. "The Directors' and Officers' Insurance Premium: An Outside Assessment of the Quality of Corporate Governance," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 16(2), pages 449-477, October.
    • Handle: RePEc:oup:jleorg:v:16:y:2000:i:2:p:449-77
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