Abstract

The purpose of this paper is to investigate the determinants of D&O liability insurance demand in Taiwan. Based on the empirical analysis, it is found that the primary reasons for D&O insurance are to reduce litigation risk, promote growth and maintain the executives. For those currently insured firms, the most influential factors for insurance coverage and premium expenditure are total number of shareholders and inside-directors' stock holdings, while the capitals and outside-directors' stock holdings are also relevant. For all firms in general, the decision for D&O insurance is highly related to its business risk as well as its directors' compensation because more compensation implies more liability. For those uninsured companies, the study finds that the potential demand for D&O insurance is related to overseas investment and inside-directors' stock holdings. These results show that thedemand for D&O liability insurance is significantly related to the corporate governance.