The Strategic Financial Reporting: Evidence from Directors' and Officers' Liability Insurance

전략적 재무보고: 임원배상책임보험제도를 이용한 연구

  • 최정미 (청주대학교 경상대학 회계학과)
  • Received : 2016.04.26
  • Accepted : 2017.01.20
  • Published : 2017.01.28


This study investigates the association between financial reporting strategy and the directors' and officers' liability insurance. Since D&O insurance protects officers and directors against the risks of shareholder litigation, it is possible that, because of moral hazard, managers will be more willing to participate in opportunistic financial reporting such as earnings manipulation when they are covered by a generous D&O insurance policy. This paper examines the association between D&O insurance and financial reporting, specifically whether the purchase of D&O insurance affects earnings manipulation. On the other side, the firms engage earnings management are willing to purchase D&O insurance, this study tests whether earnings manipulation affects D&O purchases using listed firms in Korean stock market from 2006 to 2008. This paper finds that firms with higher discretionary accruals are less likely to purchase D&O insurance implies that managers who are participating in earnings manipulation are not willing to purchase D&O insurance. The relation between discretionary accruals and D&O is significantly negative which indicate D&O insurance purchase does not trigger earnings manipulation rather it alleviates opportunistic reporting behavior.


Supported by : 청주대학교


  1. Beneish, M. D., "Earnings management: a perspective", Managerial Finance. vol. 27, no. 1, pp.3-17, 2001.
  2. Bhagat, S., J. A. Brickley and J. L. Coles, "Managerial indemnification and liability insurance: The effect on shareholder wealth", Journal of Risk and Insurance. vol. 54, no. 3, pp. 721-736, 1987.
  3. Chalmers, J., L. Dann and J. Harford, "Managerial opportunism? Evidence from directors' and officers' insurance purchases", Journal of Finance. vol. 57, no. 2, pp. 609-639, 2002.
  4. Choi, J. M., "Managerial Ownership and Debt Choice", Journal of Digital Convergence, vol. 11, no. 4, pp.177-188, 2013.
  5. Choi, Y. M., "Manageral stock ownership and debt maturity", Journal of the Korea Convergence Society vo1. 6, no.1, pp.71-76, 2015.
  6. Core, J. E., "On the corporate demand for directors' and officers' insurance", Journal of Risk and Insurance. vol. 64, no. 1, pp. 63-87, 1997.
  7. DeAngelo, L. E., "Managerial competition, information costs and corporate governance: the use of accounting performance measures in proxy contests", Journal of accounting and Economics. vol. 10, no. 1, pp. 3-36, 1988.
  8. Esterwood, C. M., "Takeovers and incentives for earnings management: an empirical analysis", Journal of Applied Business Research. vol. 14, no. 1, pp. 29-47, 1988.
  9. Healy, P., and J. Wahlen, "A review of the earnings management literature and implications for standard setters", Accounting Horizons. vol. 13, no. 3, pp. 365-383, 1999.
  10. Kaltchev, G., "The demand for directors' and officers' liability insurance by US public companies", Working paper, Florida State University. 2004.
  11. Kim, D. I., "Anaysis on chinese companies with introduction of the IFRS and the conservatism Freatures", Journal of Digital Convergence. vol. 14, no. 8, pp.105-113, 2016.
  12. Kim, K. H. and D. W. Yang., "A study on the effect of CEO ethics on the business performance of company: Focusing on construction companies", Journal of Digital Convergence. vol. 14, no. 4, pp.173-183, 2016.
  13. Kim. S. G., "The study of the CSR-Focused on LG electronis", Journal of Digital Convergence. vol. 14, no. 6, pp.69-83, 2016.
  14. McNichols, M.F., "Reserch design issues in earnings management studies", Journal of Accounting and Public Policy. vol. 19, no. 2, pp. 313-345, 2000.
  15. Perry, S. E., and T. H. Williams, "Earnings management preceding management buyout offers", Journal of Accounting and Economics. vol. 18, no. 2, pp. 157-179, 1994.
  16. Ronen, J., and J. Tzur, "The effect of directors' equity incentives on earnings management", Journal of Accounting and Public Policy. vol. 25, no. 3, pp. 359-386, 2006.
  17. Schipper, K., "Commentary on earnigns management", Accounting Horizon. vol. 17, no. 1, pp. 91-110, 1989.
  18. Tillinghast-Towers Perrin, "Directors and officers liability survey: US and Canadian results". 2002;
  19. Yoo, K. H. and D. L. Kim., "An empirical analysis about the usefulness of internal control information on corporate soundness assessment", Journal of Digital Convergence. vol. 14, no. 8, pp. 163-175, 2016.