Logo

Journal of Accounting Review  2021/07
Vol.73   101-132
DOI:10.6552/JOAR.202107_(73).0003

The Quest for Talented Independent Directors: The Role of Directors’ and Officers’ Liability Insurance

Kuei-Fu Li/Department of Accounting, National Pingtung University
Yi-Ping Liao/Department of Accounting, Fu Jen Catholic University

Abstract

This study explores whether directors’ and officers’ liability insurance (D&O insurance) is an effective tool in firms’ quest for talented independent directors, that is, those who are highly educated, well-connected, or financial experts. We find that firms with D&O insurance are better able to recruit talented independent directors, supporting that the protection provided by D&O insurance is determinative when talented individuals are deciding whether to join a board. We also show that D&O insurance reduces the incidence of independent directors’ resignation. Collectively, our evidence suggests that D&O insurance helps firms maintain a board with superior competence and greater stability, which also explains the wide prevalence of D&O insurance in practice. 


Keywords

Directors’ and officers’ liability insuranceIndependent directorsRecruitResignation


19 Views 7 Downloads

Recommended for you

N/A
TOP