Article - post-print
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.
This is an author-manuscript of an article accepted for publication in Journal of Financial Economics. The version of record Lin, C., Officer, M. S., & Zou, H. (2011). Directors' and officers' liability insurance and acquisition outcomes. Journal Of Financial Economics, 102507-525 is available online at: doi:10.1016/j.jfineco.2011.08.004.
Lin, C., Officer, M. S., & Zou, H. (2011). Directors' and officers' liability insurance and acquisition outcomes. Journal Of Financial Economics, 102507-525. doi:10.1016/j.jfineco.2011.08.004