Abstract
This study examines how financial markets price the information regarding the purchase of directors' and officers’ (D&O) insurance within the context of seasoned equity offerings (SEOs). We find that SEO firms carrying D&O insurance policies or higher insurance coverage experience less negative announcement effects. Further analyses show that the positive association between D&O insurance and SEO announcement effects is more pronounced for firms with higher director ownership but face weaker monitoring from product market competition. The evidence supports that the purchase of D&O insurance can serve as a form of monitoring D&Os, especially when external governance is weak.
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