Literature on the effect of directors� and officers� insurance (D&O insurance) on managers�\ndecision-making supports the contention that D&O insurance encourages managers to engage\nin opportunistic behaviors that benefit themselves at the expense of shareholders. Managerial\nmyopia is an essential agency issue. The literature suggests that myopic managers have\nincentives to reduce R&D spending to boost current earnings in order to increase their private\nbenefits. This study examines whether D&O insurance induces myopic R&D cuts. Using a\nsample of Taiwanese listed firms, the results show that firms with higher levels of D&O\ninsurance coverage are more likely to cut R&D expenditures to avoid earnings declines. This\nstudy provide insight into how the incentives arising from D&O insurance play an essential\nrole in determining managerial myopic behavior.
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