Journal of Accounting and Economics Vol. 68 No. 1 2019
Is skin in the game a game changer? Evidence from mandatory changes of D&O insurance policies
Abstract
This paper examines the incentive effects of a mandatory personal deductible in liability insurance contracts for directors and officers (D&Os). Exploiting a novel German law that mandates personal deductibles for executives, we document positive returns for affected firms around the first announcement of the plan to impose a personal deductible. We also find evidence of long-run effects: affected firms decrease risk taking in operational activities and financial reporting, and improve the quality of takeover decisions. Our study shows that the structure of D&O insurance contracts matters because mandating that D&Os have “skin in the game” appears to lead to real effects on firm value.
- DOI
- 10.1016/j.jacceco.2019.01.001
- Volume
- 68
- Issue
- 1
- Pages
- 101225
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib