Essays in corporate governance: Liability insurance, shareholder litigation and litigation announcements.

摘要

The first chapter uses a unique US dataset to analyze the demand for Directors' and Officers' liability insurance utilizing dynamic panel models. This insurance protects managers from losses mostly from shareholder litigation, which stems from the principal agent problem between managers and shareholders. Some well-established theories propose that corporate insurance plays a role in mitigating agency problems within the corporation (such as those between shareholders and managers, and those between managers and creditors), mitigates bankruptcy risk as well as provides real-services efficiencies. Applying dynamic panel data models, this paper uses these theories to perform empirical tests. The hypothesis that D&O insurance is entirely habit driven is rejected, while some role for persistence is still confirmed. I confirm the role of insurance in mitigating bankruptcy risk. Firms with higher returns appear to demand less insurance. The quality of corporate governance does appear to play a large role. I fail to confirm the role of insurance in mitigating under-investment problems in growth companies.;The second essay executes an event study of the effects of securities litigation on stock returns. Securities litigation is a common occurrence on the US investment markets, via which shareholders aim to recover losses they have suffered as a result of managerial misconduct. Filing lawsuits, however, signals to the market in general that there is something wrong with the company, unless the market knows it already. In that case, litigation may have negative consequences on future stock returns of the company. Applying t-tests, this paper tests this hypothesis and finds that significant negative stock reaction to litigation is present but not overwhelming. Positive reaction to lawsuits can sometimes be observed. Negative reaction, however, is twice as common as positive reaction to lawsuits and the overall test supports the hypothesis of negative reaction.;The third essay studies the effects of the quality of corporate governance on the probability of shareholder litigation. It utilizes a previous and a newly created governance index based on principal components. Shareholder litigation represents failure of corporate governance. The main hypothesis to be tested is that better corporate governance leads to a lower probability of shareholder litigation. I find some confirmation for this hypothesis. Further, I construct five separate governance indices based on five groups of governance variables. Thus I differentiate which indices are more important than others.