Does size and book-to-market contain intangible information about managerial incentives? Learning from corporate D&O insurance purchase

Rachel J. Huang, Vivian Jeng, Cheng Wei Wang, Jack C. Yue

Research output: Contribution to journalArticlepeer-review

Abstract

Using 2008–2018 data for all publicly-listed firms in Taiwan, this paper tests for asymmetric information in the Directors' and Officers' (D&O) liability insurance market. We argue that size and book-to-market ratio contain information such as managerial risk preferences and their intention to reduce litigation risk. Our results show that a negative relationship exists between litigation risk and insurance purchase among small and low book-to-market firms. Our findings pinpoint out the importance of using size and the book-to-market ratio when detecting asymmetric information in the corporate level.

Original languageEnglish
Article number101560
JournalPacific Basin Finance Journal
Volume68
DOIs
StatePublished - Sep 2021

Keywords

  • Advantageous selection
  • Adverse selection
  • Book-to-market
  • Directors' and officers' liability insurance
  • Intangible information
  • Size

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