The effect of D&O insurance on managerial risk taking

Risk taking in business contributes towards innovation while excessive risk taking is associated with corporate failure. This book illustrates how insurance against personal liability of the manager threatens but also benefits society and the economy

In the world of business, risk taking contributes to innovation. Yet, excessive risk taking is also associated with corporate failure. Many researchers have analyzed the relationship between personal liability rules of managers and excessive risk taking, and in this context, it has been often argued that insurance against personal liability of the director(s)/officer(s) (also known as D&O insurance) would weaken the manager''s incentive to take care. However, little is actually known about the workings and effects of D&O insurance. This book analyzes how D&O insurance should work ideally and how it currently works in the US, the UK, the Netherlands, and Germany. It illustrates how D&O insurance threatens - but also benefits - society and the economy. In fact, a properly functioning D&O insurance system can more elegantly incentivize adequate risk taking than for example, direct regulation of managerial activity (e.g. disqualification) or the adoption of harsher liability rules. The book provides an overview of the implications of D&O insurance, in particular to: policy makers who can take concrete reform proposals * investors who can increase their returns by using the information on corporate D&O insurance policies * creditors who can better estimate their debtor''s default risk by understanding the debtor''s D&O insurance policy * prospective insurers who can learn in depth about the D&O market, the policy design, and the D&O risk. (Series: Ius Commuen Europaeum - Vol. 140) [Subject: Business Law, Insurance Law, Comparative Law]