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董監事暨重要職員責任保險對企業信用評等之影響
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Creditors are also important stakeholders. D&O insurance may also affect creditors’
perceptions of credit risk. Due to the credit rating agencies being professional debt rating
institutions, the credit ratings issued by them will affect the cost of debt. So far, no prior
studies have investigated the effect of D&O insurance and its coverage on firms’ credit
ratings. To better understand these effects, we explore the association between D&O
insurance and firms’ credit ratings.
The primary objectives of sound corporate governance are (1) to enhance business
performance and corporate value and (2) to protect the interests of all stakeholders. Prior
studies have demonstrated that corporate governance impact credit ratings (Ashbaugh-Skaife
et al., 2006; Lin et al., 2009; Alali et al., 2012). Directors and managers play critical roles in
the efforts to build sound corporate governance systems. The literature exposes two opposing
effects of D&O insurance on corporate governance – the monitoring role and managerial
opportunism. In other words, D&O insurance also has two opposing effects on firms’ credit
risk.
If the purchase of D&O insurance can strengthen the function of the board, business
performance will be effectively enhanced. Moreover, this will reduce the probability of
default. In other words, D&O insurance can improve a firm’s credit risk (Monitoring Role
Effect). In addition, the included compensation of the insurance company as a guarantee
allows D&O insurance to further protect the interests of the creditors. Therefore, the
protection of the interests of creditors and the improvement in a firm’s credit risk that come
with D&O insurance should lead to superior credit ratings issued by credit rating agencies.
On the other hand, if the purchase of D&O insurance increases the risk of moral hazard
from the directors and officers, the likelihood of damage at the expense of the creditors also
increases (Managerial Opportunism Effect). It follows that the purchase of D&O insurance
will lead to inferior credit ratings issued by credit rating agencies. Motivated by these
paradoxical effects, we design the following research hypotheses (these hypotheses are stated
as alternative hypotheses):
H1: D&O insurance is correlated with credit ratings.
H2a: For firms with D&O insurance, normal D&O insurance coverage is negatively
associated with credit ratings (superior credit ratings).
H2b: For firms with D&O insurance, abnormal D&O insurance coverage is positively
associated with credit ratings (inferior credit ratings).