U.S. Evidence from D&O Insurance on Accounting-Related Agency Costs: Implications for Country-Specific Studies

Journal of Financial Reporting, forthcoming

49 Pages Posted: 1 Mar 2019 Last revised: 3 Mar 2021

See all articles by Dain C. Donelson

Dain C. Donelson

University of Iowa

Brian Monsen

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Christopher G. Yust

Texas A&M University

Date Written: March 1, 2021

Abstract

any studies use country-specific evidence to investigate research questions of broad interest due to research advantages of a given country, such as data availability or to exploit an exogenous event that allows identification. One such research stream largely examines Canadian directors’ and officers’ (D&O) insurance and finds that more coverage (i.e., higher limits) is negatively associated with financial reporting quality and positively related to litigation (accounting-related agency costs). However, the U.S. and Canada differ on key issues relevant to securities litigation and D&O insurance. Thus, we predict and find that premiums, rather than limits, provide information about U.S. accounting-related agency costs. Nonetheless, the incremental information provided by premiums about accounting-related agency costs is limited, and audit fees provide more consistent and better information about these agency costs. Thus, although researchers argue for disclosure of U.S. D&O insurance information, the usefulness of such disclosures may be limited because audit fees are already disclosed. Our findings also suggest caution in broadly generalizing country-specific studies.

Keywords: Directors’ and Officers’ Insurance; Audit Fees; Agency Costs; Financial Reporting; Country-Specific Studies

JEL Classification: G22, G32, G34, G38, K22, K41, M41, M42

Suggested Citation

Donelson, Dain C. and Monsen, Brian and Yust, Christopher G., U.S. Evidence from D&O Insurance on Accounting-Related Agency Costs: Implications for Country-Specific Studies (March 1, 2021). Journal of Financial Reporting, forthcoming, Available at SSRN: https://ssrn.com/abstract=3339029 or http://dx.doi.org/10.2139/ssrn.3339029

Dain C. Donelson

University of Iowa ( email )

108 Pappajohn Business Building
Iowa City, 52242-1000
United States

Brian Monsen

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Christopher G. Yust (Contact Author)

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States
979.845.3439 (Phone)

HOME PAGE: http://www.christopheryust.com

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