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Impact of D&O Insurance on Shareholder Wealth During Financial Restatement Announcements: An Empirical Study in Taiwan

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  • Ching-Ching Chen
  • Kuo-Hao Lin
  • Tsai-Hsuan Tsai
  • Hsiu-Jung Tsai

Abstract

This study investigates the influence of Directors’ and Officers’ Liability Insurance (D&O insurance) on shareholder wealth at the time of financial restatement announcements. Utilizing a dataset comprising 226 restatement announcements from firms listed on the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx) spanning 2009 to 2021, our analysis demonstrates a statistically significant negative impact of D&O insurance coverage on shareholder wealth during these announcements. This supports the hypothesis that moral hazard-induced opportunism arises with D&O insurance coverage. Nevertheless, this detrimental effect is less significant in firms with strong other external monitoring mechanisms, such as active financial analyst coverage, substantial institutional investor ownership, and extensive media attention. These findings suggest that robust oversight can attenuate the potential negative repercussions associated with D&O insurance. Our research contributes to a deeper understanding of the role of D&O insurance within the framework of corporate information disclosure quality and its economic implications on financial restatements.  JEL classification numbers: G14, G22, G34, M41.

Suggested Citation

  • Ching-Ching Chen & Kuo-Hao Lin & Tsai-Hsuan Tsai & Hsiu-Jung Tsai, 2024. "Impact of D&O Insurance on Shareholder Wealth During Financial Restatement Announcements: An Empirical Study in Taiwan," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 14(6), pages 1-2.
    • Handle: RePEc:spt:admaec:v:14:y:2024:i:6:f:14_6_2
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    References listed on IDEAS

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    More about this item

    Keywords

    Directors’ and Officers’ Liability Insurance; Financial Restatements; Corporate Governance; Moral Hazard; External Monitoring.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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