Directors’ and Officers’ Liability Insurance and Independent Directors’ Voting

We study, for the first time, whether and how directors' and officers' (D&O) insurance affects independent directors' voting. We provide new evidence that D&O insurance through the insurance channel and the insurance-monitoring channel incentivizes independent directors to monitor. The positive relation between D&O insurance and dissension is stronger if a firm faces higher information asymmetry or litigation risk, or if the firm purchased the D&O policy from a higher-quality insurer. Although dissension occurs less at D&O firms with high agency conflict, which is consistent with the argument that D&O insurance induces self-dealing by nullifying the disciplining effect of litigation, we find that giving shareholders a say on the corporate decision to buy D&O insurance counteracts this agency effect of D&O insurance