Liability insurance and quality decision making

 

JUNE 12, 2012 Tue  Lawsuit-Protection Insurance Leads Execs to Make Poor Choices Entrenched executives and directors who are insured against shareholder lawsuits tend to make worse M&A decisions, according to a team led by Chen Lin of Chinese University of Hong Kong. For example, their firms' average acquisition premiums (the percentage amounts they pay above the targets' stock price) are more than twice those paid by firms with uninsured officers. The findings suggest that the threat of litigation can lead to better investment choices, but only if corporate officials aren't shielded by liability insurance. Source: Directors' and officers' liability insurance and acquisition outcomes