Affiliation:
1. School of Economics and Management, Tongji University Shanghai China
2. School of Financial Technology, Shanghai Lixin University of Accounting and Finance Shanghai China
Abstract
AbstractThis study investigates whether directors' and officers' liability insurance (D&O insurance) misleads creditors' lending decisions by examining its effect on corporate debt maturity structure. We find that purchasing D&O insurance leads to increased corporate debt maturity, and this effect is more pronounced for firms with weaker corporate governance. These results suggest that creditors may view D&O insurance as an external monitoring tool that helps improve corporate governance. However, D&O insurance induces higher firm risk, but cannot help decrease agency costs or improve firm performance, that is, it results in more severe managerial opportunism. Our findings suggest that D&O insurance, to some extent, misguides creditors' lending decisions.
Funder
National Natural Science Foundation of China
Humanities and Social Science Fund of Ministry of Education of China
Subject
Economics and Econometrics,Finance,Accounting