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Effects of directors and officers liability insurance on accounting restatements

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  • Weng, Tzu-Ching
  • Chen, Guang-Zheng
  • Chi, Hsin-Yi

Abstract

This study investigates the relationship between directors and officers liability insurance (D&O insurance) coverage and the probability of accounting restatements. The results show that when managers are covered by relatively higher levels of D&O insurance, they are more likely to restate their financial reports. Moreover, the findings indicate that D&O insurance coverage is related to core earnings restatements and income overstatements, suggesting that managers’ accounting policies are more aggressive when they have fewer legal liability concerns. Overall, these results provide consistent evidence that reducing managerial legal liability has the effect of encouraging managers to misstate reported earnings.

Suggested Citation

  • Weng, Tzu-Ching & Chen, Guang-Zheng & Chi, Hsin-Yi, 2017. "Effects of directors and officers liability insurance on accounting restatements," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 437-452.
    • Handle: RePEc:eee:reveco:v:49:y:2017:i:c:p:437-452
    DOI: 10.1016/j.iref.2017.02.010
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    More about this item

    Keywords

    Directors and officers liability insurance; Legal liability; Earnings restatements;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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