Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960360 | Journal of Financial Economics | 2011 | 19 Pages |
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.
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Authors
Chen Lin, Micah S. Officer, Hong Zou,