Research On Directors’Liability Insurance And Investment Efficiency

Large numbers of financial scandals have been exposed in recent years, which brings investigated and responsible risks to directors and senior executives. With the increasing of interest protecting consciousness of investors, class actions lawsuits and risk of directors and senior executives become increasingly serious, which improve potential demands of director liability insurance. Foreign scholars have already made detail discussion about director liability insurance in various aspects, such as shareholders’ interest protection, external supervision, management risk aversion, signal transmission and financial effect. And form a complete theory system in respect of demand motivation of director liability insurance. Domestic scholars also make a complete analysis of director liability insurance in legal, function and demand. What’s more, foreign and domestic scholars reach a consistent view about it. However, there is little research in corporate governance and director liability insurance. Among those limited references, research in investment efficiency and director liability insurance is-really scarce.Investment efficiency is related to the increase of corporate value and shareholder’s wealth. However, information asymmetry and agency problems will result in deviation of investment decision, incurring over investment or under investment. Foreign research shows that director liability insurance can be used as kind of way of external supervision, which supervises director and senior executives, reducing opportunistic behavior and agency cost, reliving over investment and under investment. Nevertheless, director liability insurance may cause adverse selection and intensify morality risk, reducing corporate investment efficiency. Therefore, it is meaningful to discuss whether director liability insurance has a positive effect on corporate governance.The article is based on listed companies’financial data about director liability insurance from2006to2012in Shanghai and Shenzhen stock market. On the basis of distinguish over investment and under investment of corporate inefficient investment, using normative analysis, descriptive statistics, correlation analysis and regression analysis and other research methods to discuss the relationship of director liability insurance and corporate investment efficiency.The empirical results indicate that director liability insurance can relive over investment, but can’t ease under investment. Listed companies in our country should flexibly use director liability insurance to improve corporate investment efficiency.