Managerial Opportunism? Evidence from Directors' and Officers' Insurance Purchases
We analyze a sample of 72 IPO firms that went public between 1992 and 1996 for which we have detailed proprietary information about the amount and cost of Damp;O liability insurance. If managers of IPO firms are exploiting superior inside information, we hypothesize that the amount of insurance coverage chosen will be related to the post-offering performance of the issuing firm's shares. Consistent with the hypothesis, we find a significant negative relation between the three-year post-IPO stock price performance and the insurance coverage purchased in conjunction with the IPO. One plausible interpretation is that, like insider securities transactions, Damp;O insurance decisions reveal opportunistic behavior by managers. This provides some motivation to argue that disclosure of the details of Damp;O insurance decisions, as is required in some other countries, is valuable
Year of publication: |
[2004]
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Authors: | Chalmers, John |
Other Persons: | Dann, Larry (contributor) ; Harford, Jarrad (contributor) |
Publisher: |
[2004]: [S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
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