Journal of Financial Economics Vol. 102 No. 3 2011
Directors' and officers' liability insurance and acquisition outcomes
Abstract
We examine the effect of directors' and officers' liability insurance (D&O insurance) on the outcomes of merger and acquisition (M&A) decisions. We find that acquirers whose executives have a higher level of D&O insurance coverage experience significantly lower announcement-period abnormal stock returns. Further analyses suggest that acquirers with a higher level of D&O insurance protection tend to pay higher acquisition premiums and their acquisitions appear to exhibit lower synergies. The evidence provides support for the notion that the provision of D&O insurance can induce unintended moral hazard by shielding directors and officers from the discipline of shareholder litigation.
- DOI
- 10.1016/j.jfineco.2011.08.004
- Volume
- 102
- Issue
- 3
- Pages
- 507-525
- Language
- en
- Sources
- bibtex:phds-export.bib openalex openalex crossref