Directors and Officers (D&O) liability insurance has been criticized in finance literature on the ground of managerial opportunism.Yet, whether it ruins or improves firm value has been an inconclusive issue in broader literature.We argue that the Monitoring Effect of D&O insurance improves firm value, whereas the Moral Hazard Effect of D&O insurance destroys firm value.The trade-off between the Monitoring Effect and Moral Hazard Effect depends on the information cost to independent directors.We find that, when a sample of Canadian public rums is considered as a whole without regard to the information cost to independent directors,a change in D&O insurance has no net effect on a firm's subsequent annual stock return.However, when we examine a subsample including exclusively low information cost firms, the results indicate that, in line with the hypothesis that the Monitoring Effect dominates Moral Hazard effect under a low information cost,annual stock returns are significantly higher after an increase in D&O insurance coverage.Our findings are robust to endogeneity checks and have important implication on the regulation of D&O insurance.