How does the credit rating react to the function of d&o insurance?

Abstract

This study investigated the association between credit ratings and affiliated directors and found that credit raters perceive affiliated directors as a credit risk-increasing factor in corporate government and thus are more likely to assign unfavorable ratings to companies with high levels of affiliated directors. However, credit raters perceive the function of D&O insurance as a credit risk-decreasing factor in mitigating the effects of affiliated directors and thus are more likely to assign favorable ratings to companies with high ratio of affiliated directors when these companies have purchased the D&O insurance. These results imply that credit raters encourage companies purchasing D&O insurance in protecting the quality of corporate government.