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NTU Management Review
Vol. 34 No. 1 Apr. 2024, 45-90
https://doi.org/10.6226/NTUMR.202404_34(1).0002

The Interrelationship among Normal and Abnormal D&O
Insurance Coverage, Institutional Investor Characteristics and
Audit Fees

董監事責任險正常及異常投保金額、機構投資人特性與審
計公費之關聯性

Jiun-Wei Chiou, Department of Accounting, National Taiwan University
邱軍瑋 / 國立臺灣大學會計學系
Pei-Cheng Liao, Department of Accounting, National Taiwan University
廖珮真 / 國立臺灣大學會計學系
Received 2021/8, Final revision received 2023/6

Abstract
This paper first examines the relationship between the appropriateness of D&O insurance
coverage and audit fees. The results show that if the firm purchases appropriate (normal)
D&O insurance coverage, as the normal D&O insurance coverage increases, the auditor
charges lower audit fees. However, if the firm purchases excess (abnormal) D&O insurance
coverage, it has an adverse effect on the directors’ and managers’ behavior and increases
the litigation risk. Hence, as the abnormal D&O insurance coverage increases, the auditor
charges higher audit fees. Further analysis examines the interaction effect between
the D&O insurance coverage and institutional investors who have insurance business
relationships with the D&O insured companies on audit fees. The examination reveals that
when the firm purchases appropriate D&O insurance coverage, the institutional investor
in the insurance business relationship has an information advantage, which enhances
the monitoring mechanism. Thus, the auditor charges lower audit fees for the client who
has an institutional investor in the insurance business relationship. On the other hand,
when the firm purchases excess D&O insurance coverage, due to conflicts of interest, an
institutional investor will be afraid of losing current or potential business if they oppose
management’s decisions. The institutional investor will be less likely to deter the directors’
and managers’ opportunistic behavior, which increases the firm’s litigation risk. Thus, the
auditor charges higher audit fees for the client who purchases abnormal D&O insurance
coverage and has an institutional investor in the insurance business relationship.

【Keywords】directors’ and officers’ insurance, normal D&O insurance coverage, abnormal
D&O insurance coverage, institutional investor in insurance business
relationship, audit fees

領域主編：戚務君教授

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