Review of Accounting Studies

, Volume 23, Issue 2, pp 528–588 | Cite as

The cost of disclosure regulation: evidence from D&O insurance and nonmeritorious securities litigation

  • Dain C. Donelson
  • Justin J. Hopkins
  • Christopher G. Yust


This study examines whether the required disclosure of directors’ and officers’ (D&O) insurance premiums leads to nonmeritorious securities litigation. Our research setting uses a proprietary D&O insurance database that includes New York and non-New York firms, combined with the fact that New York firms must disclose D&O insurance premiums. We thus can exploit a natural experiment based on inter-state variation in disclosure regulation. Disclosed premiums may influence case selection in two ways. First, higher premiums signal higher limits, which plaintiffs’ lawyers likely believe enable higher settlements. Second, higher premiums indicate higher risk assessments from insurers and thus a higher likelihood that stock price drops signal misconduct rather than bad luck. We find that D&O insurance premiums for New York firms are associated with a higher dismissal rate. Offsetting this higher dismissal rate, plaintiffs’ lawyers can achieve higher settlements in the relatively few successful cases.


Disclosure Regulation Directors’ and Officers’ (D&O) Insurance Litigation 

JEL Classification

G38 K22 K41 M41 



We thank Patricia Dechow (the editor), two anonymous referees, Bill Baber, Jim Blinn, Khrystyna Bochkay, Jen Glenn, Stuart Gillan, Ross Jennings, Todd Kravet, Paul Ordyna, Kimberly Reilly, Ed Swanson, Jake Thornock and David Weber. We also thank workshop participants at the University of Chicago, the University of Connecticut, Georgetown University, the University of Pennsylvania (Wharton) and the University of Virginia (Darden Graduate Business School) and conference participants at the 2015 AAA Annual Meeting. We gratefully acknowledge research support provided by the Red McCombs School of Business, Darden Graduate Business School and the Mays Business School. All errors are our own.


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Copyright information

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

Authors and Affiliations

  • Dain C. Donelson
    • 1
  • Justin J. Hopkins
    • 2
  • Christopher G. Yust
    • 3
  1. 1.McCombs School of Business, University of Texas – AustinAustinUSA
  2. 2.Darden Graduate School of Business, University of VirginiaCharlottesvilleUSA
  3. 3.Mays Business SchoolTexas A&M UniversityCollege StationUSA

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