Directors' and officers' liability insurance and the shareholder value of strategic alliance announcement in Taiwan

This study examines the impact of Directors' and Officers' liability insurance (D&O insurance) on shareholder value within the framework of strategic alliances (SAs). Utilizing a dataset from companies listed on the Taiwan stock market from 2009 to 2019, our analysis identifies a significant positive correlation between D&O insurance and abnormal returns around the time of strategic alliance announcements. This beneficial effect is especially marked in international, horizontal, equity-related, and marketing alliances. Our overall findings support the monitoring mechanism hypothesis, which suggests that D&O insurance is indicative of robust governance practices. By providing coverage, D&O insurance enhances managerial efficiency and reduces the potential for agency conflicts due to information asymmetry-a frequent concern in strategic alliances-thereby enhancing shareholder value. This study contributes to the literature by highlighting how D&O insurance can act as a pivotal governance mechanism that reassures investors of a firm's commitment to effective management and strategic alignment, particularly in complex alliance settings.