The directors' and officers' insurance premium: an outside assessment of the quality of corporate governance | Zendy

John E. Core | Zendy

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The directors' and officers' insurance premium: an outside assessment of the quality of corporate governance

Author(s) -

John E. Core

Publication year - 2000

Publication title -

the journal of law economics and organization

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.986

H-Index - 70

eISSN - 8756-6222

pISSN - 1465-7341

DOI - 10.1093/jleo/16.2.449

Subject(s) - corporate governance , proxy (statistics) , business , accounting , quality (philosophy) , risk premium , executive compensation , actuarial science , finance , economics , econometrics , philosophy , epistemology , machine learning , computer science

Using a sample of directors' and officers' (D&O) premiums gathered from the proxy statements of Canadian companies, this article examines the D&O premium as a measure of ex ante litigation risk. I find a significant association between D&O premiums and variables that proxy for the quality of firms' governance structures. The association between the proxies for governance structure quality and D&O premiums is robust to a number of alternative specifications. This article provides confirmatory evidence that the D&O premium reflects the quality of the firm's corporate governance by showing that measures of weak governance implied by the D&O premium are positively related to excess CEO compensation. The overall results suggest that D&O premiums contain useful information about the quality of firms' governance. Copyright 2000 by Oxford University Press.

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