Incentive

Deductible

German

Actuarial science

Microeconomics

Accounting

Archaeology

Economics

Business

Insurance policy

Monetary economics

Liability insurance

Liability

Finance

History

Journal of Accounting and Economics

This paper examines the incentive effects of a mandatory personal deductible in liability insurance contracts for directors and officers (D&Os). Exploiting a novel German law that mandates personal deductibles for executives, we document positive returns for affected firms around the first announcement of the plan to impose a personal deductible. We also find evidence of long-run effects: affected firms decrease risk taking in operational activities and financial reporting, and improve the quality of takeover decisions. Our study shows that the structure of D&O insurance contracts matters because mandating that D&Os have "skin in the game" appears to lead to real effects on firm value.

Is skin in the game a game changer? Evidence from mandatory changes of D&amp;O insurance policies

Is skin in the game a game changer? Evidence from mandatory changes of D&amp;O insurance policies

Is skin in the game a game changer? Evidence from mandatory changes of D&O insurance policies