Journal article
Insurers and Lenders as Monitors During Securities Litigation: Evidence from D&O Insurance Premiums, Interest Rates, and Litigation Costs
The Journal of risk and insurance, Vol.86(3), pp.663-696
09/2019
DOI: 10.1111/jori.12231
Abstract
This study examines whether directors' and officers' insurers and lenders effectively monitor securities litigation and respond through pricing before case outcomes are known. By "monitoring," we refer to tracking case progress and obtaining information from the insured (defendant) firm and its counsel prior to case resolution. We find that insurers and lenders increase rates, and that this effect is almost completely isolated to firms with cases that eventually settle. We confirm that this response is reasonable as settled cases are associated with lower future earnings, while there is generally no relation between future earnings and dismissed cases. As direct costs appear low, our results suggest that most costs are indirect in the form of reputational damage. Overall, our results suggest that researchers and policymakers interested in litigation should focus on settled cases, which are the only cases with material long-term costs.
Details
- Title: Subtitle
- Insurers and Lenders as Monitors During Securities Litigation: Evidence from D&O Insurance Premiums, Interest Rates, and Litigation Costs
- Creators
- Dain C. Donelson - University of IowaChristopher G. Yust - Mitchell Institute
- Resource Type
- Journal article
- Publication Details
- The Journal of risk and insurance, Vol.86(3), pp.663-696
- Publisher
- Wiley
- DOI
- 10.1111/jori.12231
- ISSN
- 0022-4367
- eISSN
- 1539-6975
- Number of pages
- 34
- Grant note
- Red McCombs School of Business Mays Business School
- Language
- English
- Date published
- 09/2019
- Academic Unit
- Accounting; Law Faculty
- Record Identifier
- 9984380417802771
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