Directors' Liability Insurance and the Value of Cash

董事責任險與現金持有價值

張哲嘉(Che-Chia Chang)；陳家偉(Chia-Wei Chen)；陳珮瀅(Pei-ying Chen)；王有惟(Yuwei Wang)

Directors' liability insurance ； Value of cash holdings ； Corporate governance ； 董事責任險 ； 現金持有價值 ； 公司治理

會計審計論叢

6卷2期（2016 / 12 / 01）

81 - 113

英文

We examine the effect of directors' liability insurance on the value of firms' cash holdings. Our sample is consisted of listed firms in Taiwan because they are required to disclose information regarding their directors' liability insurance status. Our results show that the higher the directors' liability insurance coverage, the higher the marginal value of cash holdings. This positive relationship between directors' liability insurance coverage and marginal value of cash holdings particularly exists in firms with excess cash holdings. Despite the possibility that directors' liability insurance may weaken corporate governance mechanism due to moral hazard, our findings actually document a positive effect associated with directors' liability insurance.

有別於美國公司，臺灣公司需揭露董事責任險相關資訊，本文以臺灣公司為研究對象，探討公司投保董事責任險對其現金持有價值之影響。研究結果顯示，投保較高董事責任險保額的公司，其持有現金的邊際價值較高。研究結果進一步指出，此正相關主要存在於持有超額現金的公司中；若公司未持有超額現金，則董事責任險保額與持有現金之邊際價值無顯著關係。雖然過去文獻指出董事責任險可能削弱公司治理機制，本文研究結果隱含董事責任險的正面效果。

1. Chan, C.-C.,Chen, C.-W.(2014).Does the protection of directors’ liability insurance lead to overinvestment?.Journal of Financial Studies,22(1),61-80.
   連結：
2. Adams, M.,Lin, C.,Zou, H.(2011).Chief executive officer incentives, monitoring, and corporate risk management: Evidence from insurance use.The Journal of Risk and Insurance,78(3),551-582.
3. Aguir, I.,Burns, N.,Mansi, S. A.,Wald, J. K.(2014).Liability protection, director compensation, and incentives.Journal of Financial Intermediation,23(4),570-589.
4. Baker, T.,Griffith, S. J.(2006).The missing monitor in corporate governance: The directors’ and officers’ liability insurer.The Georgetown Law Journal,95(6),1795-1842.
5. Bhagat, S.,Brickley, J. A.,Coles, J. L.(1987).Managerial indemnification and liability insurance: The effect on shareholder wealth.The Journal of Risk and Insurance,54(4),721-736.
6. Boyer, M. M.(2014).Directors’ and officers’ insurance and shareholder protection.The Journal of Financial Perspectives,2(1),107-128.
7. Chalmers, J. M. R.,Dann, L. Y.,Harford, J.(2002).Managerial opportunism? Evidence from directors’ and officers’ insurance purchases.The Journal of Finance,57(2),609-636.
8. Chen, C. W.,Lin, J. B.,Yi, B.(2011).Directors’ liability insurance and stock market liquidity.Journal of International Finance Studies,11(2),171-190.
9. Chen, K. C. W.,Chen, Z.,Wei, K. C. J.(2011).Agency costs of free cash flow and the effect of shareholder rights on the implied cost of equity capital.Journal of Financial and Quantitative Analysis,46(1),171-207.
10. Chen, Z.,Li, O. Z.,Zou, H.(2016).Directors’ and officers’ liability insurance and the cost of equity.Journal of Accounting and Economics,61(1),100-120.
11. Chung, H. H.,Wynn, J. P.(2008).Managerial legal liability coverage and earnings conservatism.Journal of Accounting and Economics,46(1),135-153.
12. Claessens, S.,Djankov, S.,Lang, L. H. P.(2000).The separation of ownership and control in East Asian Corporations.Journal of Financial Economics,58(1-2),81-112.
13. Claessens, S.,Fan, J. P. H.(2002).Corporate governance in Asia: A survey.International Review of Finance,3(2),71-103.
14. Core, J. E.(1997).On the corporate demand for directors’ and officers’ insurance.The Journal of Risk and Insurance,64(1),63-87.
15. Core, J. E.(2000).The directors’ and officers’ insurance premium: An outside assessment of the quality of corporate governance.Journal of Law, Economics, and Organization,16(2),449-477.
16. Denis, D. J.,Sibilkov, V.(2010).Financial constraints, investment, and the value of cash holdings.The Review of Financial Studies,23(1),247-269.
17. Dittmar, A.,Mahrt-Smith, J.(2007).Corporate governance and the value of cash holdings.Journal of Financial Economics,83(3),599-634.
18. Dittmar, A.,Mahrt-Smith, J.,Servaes, H.(2003).International corporate governance and corporate cash holdings.The Journal of Financial and Quantitative Analysis,38(1),111-133.
19. Fama, E. F.,French, K. R.(1993).Common risk factors in the returns on stocks and bonds.Journal of Financial Economics,33(1),3-56.
20. Faulkender, M.,Wang, R.(2006).Corporate financial policy and the value of cash.The Journal of Finance,61(4),1957-1990.
21. Frésard, L.,Salva, C.(2010).The value of excess cash and corporate governance: Evidence from US cross-listings.Journal of Financial Economics,98(2),359-384.
22. Harford, J.(1999).Corporate cash reserves and acquisitions.The Journal of Finance,54(6),1969-1997.
23. Harford, J.,Mansi, S. A.,Maxwell, W. F.(2008).Corporate governance and firm cash holdings in the US.Journal of Financial Economics,87(3),535-555.
24. Heckman, J. J.(1979).Sample selection bias as a specification error.Econometrica,47(1),153-161.
25. Holderness, C. G.(1990).Liability insurers as corporate monitors.International Review of Law and Economics,10(2),115-129.
26. Huang, P.,Zhang, Y.(2012).Does enhanced disclosure really reduce agency costs? Evidence from the diversion of corporate resources.The Accounting Review,87(1),199-229.
27. Jensen, M. C.(1986).Agency costs of free cash flow, corporate finance, and takeovers.The American Economic Review,76(2),323-329.
28. Kusnadi, Y.(2011).Do corporate governance mechanisms matter for cash holdings and firm value?.Pacific-Basin Finance Journal,19(5),554-570.
29. Li, K.-F.,Liao, Y.-P.(2014).Directors’ and officers’ liability insurance and investment efficiency: Evidence from Taiwan.Pacific-Basin Finance Journal,29,18-34.
30. Lin, C.,Officer, M. S.,Wang, R.,Zou, H.(2013).Directors’ and officers’ liability insurance and loan spreads.Journal of Financial Economics,110(1),37-60.
31. Lin, C.,Officer, M. S.,Zou, H.(2011).Directors’ and officers’ liability insurance and acquisition outcomes.Journal of Financial Economics,102(3),507-525.
32. Mayers, D.,Smith, C. W., Jr.(1982).On the corporate demand for insurance.The Journal of Business,55(2),281-296.
33. Myers, S. C.,Rajan, R. G.(1998).The paradox of liquidity.The Quarterly Journal of Economics,113(3),733-771.
34. O’Sullivan, N.(2002).The demand for directors’ and officers’ insurance by large UK companies.European Management Journal,20(5),574-583.
35. O’Sullivan, N.(1997).Insuring the agents: The role of directors’ and officers’ insurance in corporate governance.The Journal of Risk and Insurance,64(3),545-556.
36. Opler, T.,Pinkowitz, L.,Stulz, R.,Williamson, R.(1999).The determinants and implications of corporate cash holdings.Journal of Financial Economics,52(1),3-46.
37. Priest, G. L.(1987).The current insurance crisis and modern tort law.The Yale Law Journal,96(7),1521-1590.
38. Regan, L.,Hur, Y.(2007).On the corporate demand for insurance: The case of Korean nonfinancial firms.The Journal of Risk and Insurance,74(4),829-850.
39. Richardson, S.(2006).Over-investment of free cash flow.Review of Accounting Studies,11(2-3),159-189.
40. Romano, R.(1991).The shareholder suit: Litigation without foundation?.The Journal of Law, Economics, and Organization,7(1),55-87.
41. Vafeas, N.,Joy, O. M.(1995).Open market share repurchases and the free cash flow hypothesis G35.Economics Letters,48(3-4),405-410.
42. Wynn, J. P.(2008).Legal liability coverage and voluntary disclosure.The Accounting Review,83(6),1639-1669.
43. Yamori, N.(1999).An empirical investigation of the Japanese corporate demand for insurance.The Journal of Risk and Insurance,66(2),239-252.
44. Zou, H.,Wong, S.,Shum, C.,Xiong, J.,Yan, J.(2008).Controlling-minority shareholder incentive conflicts and directors’ and officers’ liability insurance: Evidence from China.Journal of Banking and Finance,32(12),2636-2645.

1. Hung-Shu Fan,Ching-Lung Chen,Chao-Jung Pan(2023)。Family-Controlled Firms, Directors' & Officers' Insurance Coverage, and the Use of Derivatives。會計審計論叢，13(1)，83-122。
2. 陳昭君,張哲嘉(2022)。Investment under Uncertainty: The Effect of Directors' and Officers' Liability Insurance。會計審計論叢，12(2)，139-183。