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<p>This study investigates how directors’ and officers’ liability insurance (D&amp;O insurance) influences shareholder value during open-market share repurchase announcements. Analyzing a sample of Taiwanese listed firms between 2009 and 2021, we test two competing hypotheses—the governance credibility hypothesis and the managerial opportunism hypothesis. Results show that firms with higher D&amp;O insurance coverage exhibit significantly greater announcement-period abnormal returns, with results robust to self-selection and endogeneity controls. The effect is stronger among firms facing greater information asymmetry, financial constraints, weaker external monitoring, or heightened market uncertainty. Further analyses show that such firms are more likely to exhibit undervaluation characteristics, complete repurchase programs, and deliver superior long-term stock and operating performance. These findings offer novel evidence that D&amp;O insurance enhances the credibility of undervaluation signals in the context of corporate repurchases.</p>

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Does directors’ and officers’ liability insurance lend governance credibility? Evidence from share repurchase in Taiwan

  • 期刊论文

  • 发表日期：

    2026年3月3日

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  • Yi-Cheng Shih,
  • Xuan-Qi Su

摘要

This study investigates how directors’ and officers’ liability insurance (D&O insurance) influences shareholder value during open-market share repurchase announcements. Analyzing a sample of Taiwanese listed firms between 2009 and 2021, we test two competing hypotheses—the governance credibility hypothesis and the managerial opportunism hypothesis. Results show that firms with higher D&O insurance coverage exhibit significantly greater announcement-period abnormal returns, with results robust to self-selection and endogeneity controls. The effect is stronger among firms facing greater information asymmetry, financial constraints, weaker external monitoring, or heightened market uncertainty. Further analyses show that such firms are more likely to exhibit undervaluation characteristics, complete repurchase programs, and deliver superior long-term stock and operating performance. These findings offer novel evidence that D&O insurance enhances the credibility of undervaluation signals in the context of corporate repurchases.