Journal of Economics and Finance

, Volume 43, Issue 1, pp 27–43 | Cite as

Directors’ liability insurance and investment-cash flow sensitivity

  • Chia-Chung Chan
  • Yung-Ho Chang
  • Chia-wei Chen
  • Yuwei WangEmail author


We examine the association between directors’ liability insurance and investment-cash flow sensitivity with listed firms in Taiwan. We find that directors’ liability insurance increases the investment-cash flow sensitivity. Specifically, insured firms are more likely to have excessive investment than uninsured firms given the same level of cash flow. This is the result of managerial opportunistic behaviors fueled by moral hazard inherent in directors’ liability insurance. Although managerial opportunism could certainly increase the likelihood of corporate wrongdoing, our results show that it could be mitigated by having improved regulation or corporate governance.


Directors’ liability insurance D&O insurance Investment-cash flow sensitivity Taiwan 

JEL Classification



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© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of financeTunghai UniversityTaichungTaiwan
  2. 2.School of ManagementMarist CollegePoughkeepsieUSA

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