The Role of Directors’ and Officers’ Insurance in Securities Fraud Class Action Settlements
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© 2015 by The University of Chicago. All rights reserved. Because of previous data unavailability, it is unclear how important directors’ and officers’ (D&O) insurance is in securities fraud class action settlements. Using a unique data set of US D&O policies, we find that D&O insurance coverage is a less significant determinant of settlement amounts than estimated damages and proxies for the merits of cases. Limits on D&O insurance are related to settlements in only the weakest cases (those without allegations of accounting violations or institutional lead plaintiffs) where proxies for cases’ merits play a minimal role. Our findings suggest that most securities fraud class action settlements are meritorious and that accounting-related cases are a reasonable proxy for fraud.
author list (cited authors)
Donelson, D. C., Hopkins, J. J., & Yust, C. G.