Heterogeneous Beliefs and the Demand for D&O Insurance by Listed Companies

Arbeitspapier

This paper introduces a new rationale for the existence of Directors' and Officers' (D&O) insurance. We use a model with volatile stock markets where shareholders design compensation schemes that incentivize managers to stimulate short-term increases in stock prices that do not maximize long run stock market value. We show that D&O insurance provides a convenient instrument for the initial shareholders of a company to take advantage of differences in beliefs between insiders and outsiders in capital markets. The empirical results support the idea that both the insurance coverage and the premium are higher in the presence of new shareholders and volatile markets. The results prove robust in various empirical model specifications.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 4621

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Insurance; Insurance Companies; Actuarial Studies ; Corporate Finance and Governance: General ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Thema: D&O insurance ; volatile markets ; credible protection ; panel data models

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Egger, Peter ; Radulescu, Doina Maria ; Rees, Ray
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2014

Weitere Informationen

• Handle: http://hdl.handle.net/10419/93483
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ