The effect of D&O insurance on managerial risk taking

Max Gaber

Research output: ThesisDoctoral ThesisInternal

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Abstract

Excessive risk taking of managers is associated with corporate failure. Researchers argue that insurance against personal liability of a manager (Directors and Officers liability insurance) would weaken his incentive to take care and partly causes excessive risk taking. Because only little is actually known about D&O insurance, this thesis analyses how D&O insurance should work ideally and how it currently works. This thesis observes that: (i) The value of investment decisions seems to rise with D&O coverage when competitive pressure is high enough; (ii) the insured manager benefits banks, provided that the corporation purchases an average insurance coverage; (iii) the D&O insurer settles disputes differently than courts, taking into account the degree of bad publicity in the media; and (iv) in times of financial instability, D&O insurance is the best analysed compensation measure in safeguarding firm performance. Hence, smaller corporations that do not carry D&O insurance yet would greatly benefit from it.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Maastricht University
Supervisors/Advisors
  • Faure, Michael, Supervisor
  • Philipsen, Niels, Advisor
Award date23 Sep 2015
Publisher
Print ISBNs9781780683485
Publication statusPublished - 2015

Keywords

  • D&O insurance
  • manager liability
  • risk taking
  • corporate liability
  • risk aversion

Cite this

Gaber, Max. / The effect of D&O insurance on managerial risk taking. Intersentia, 2015. 254 p.
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Gaber, M 2015, 'The effect of D&O insurance on managerial risk taking', Doctor of Philosophy, Maastricht University.

The effect of D&O insurance on managerial risk taking. / Gaber, Max.

Intersentia, 2015. 254 p.

Research output: ThesisDoctoral ThesisInternal

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AU - Gaber, Max

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N2 - Excessive risk taking of managers is associated with corporate failure. Researchers argue that insurance against personal liability of a manager (Directors and Officers liability insurance) would weaken his incentive to take care and partly causes excessive risk taking. Because only little is actually known about D&O insurance, this thesis analyses how D&O insurance should work ideally and how it currently works. This thesis observes that: (i) The value of investment decisions seems to rise with D&O coverage when competitive pressure is high enough; (ii) the insured manager benefits banks, provided that the corporation purchases an average insurance coverage; (iii) the D&O insurer settles disputes differently than courts, taking into account the degree of bad publicity in the media; and (iv) in times of financial instability, D&O insurance is the best analysed compensation measure in safeguarding firm performance. Hence, smaller corporations that do not carry D&O insurance yet would greatly benefit from it.

AB - Excessive risk taking of managers is associated with corporate failure. Researchers argue that insurance against personal liability of a manager (Directors and Officers liability insurance) would weaken his incentive to take care and partly causes excessive risk taking. Because only little is actually known about D&O insurance, this thesis analyses how D&O insurance should work ideally and how it currently works. This thesis observes that: (i) The value of investment decisions seems to rise with D&O coverage when competitive pressure is high enough; (ii) the insured manager benefits banks, provided that the corporation purchases an average insurance coverage; (iii) the D&O insurer settles disputes differently than courts, taking into account the degree of bad publicity in the media; and (iv) in times of financial instability, D&O insurance is the best analysed compensation measure in safeguarding firm performance. Hence, smaller corporations that do not carry D&O insurance yet would greatly benefit from it.

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Gaber M. The effect of D&O insurance on managerial risk taking. Intersentia, 2015. 254 p.