Research On Directors And Officers' Liability Insurance, Cash Holdings And Enterprise Value

In recent years, with the development of nationals law rights and conscious, more and more medium-sized shareholders filed a civil compensation of the securities litigation request against listed corporation. With the continuous improvement of relevant laws and regulations, the annual number of cases have increased. The amount of the claim is also increasing. The risk of practicing corporate directors and executive officers, the demand of buying D&O liability insurance has been highlighted. In2006, the company law and the Securities Law has made a further revision, the implementation of the new law has aggravated the listing Corporation senior manager personal responsibility, all of this has stimulated the demand for enterprise D&O liability insurance. The theoretical research about D&O liability insurance, foreign scholars launches the discussion from the level of subscription demand, including dispersing risk, protect the interests of shareholders, provide external supervision, signal transmission and financial effect and so on. The domestic scholars also conducted a comprehensive analysis, from aspects of legal effect and the demand, and many others, and they reach a consensus opinion. However, researches which study the relationship between D&O liability insurance and corporate governance are relatively less, but also to research the relationship between D&O liability insurance and cash holdings.As we all know, the decision about cash holdings is one of the most important financial decision, it play an important role in business management, financing, investment and distribution of profits. It also could affect the firm values. But there are many Information asymmetry and principal-agent problem in our capital market, these factors will mislead the corporate cash holdings, causes the unreasonable cash holdings behavior. To summarize the results of foreign research, we find that D&O liability insurance play two different roles in corporate governance mechanism. On the one hand, D&O liability insurance can be used as a kind of external supervision mechanism, it could play the role of supervision for listing Corporation directors and executive officers. In order to reduce the opportunism behavior, reduce the company's agency cost, ease the enterprise unreasonable phenomenon of cash holdings. On the other hand, it can form a vicious spiral between corporate governance mechanism and D&O liability insurance, it triggered the adverse selection and moral hazard. Therefore, combined with Chinese specific institutional background and legal environment, to explore the relationship about D&O Liability Insurance, cash holdings and firm value, to explore the relationship about D&O Liability Insurance, cash holdings and firm value. whether D&O liability insurance can really play a positive role to the securities market in our country,or not? That has very important theory meaning and practical value.Based on the perspective of corporate governance, this paper analyzed the relationship between D&O liability insurance and cash holdings, and the relationship between D&O liability insurance and cash value by investigating some listed corporations in Shanghai stock exchange and Shenzhen stock exchange from2006to2012. The result show that: D&O liability insurance bought by the listed companies is positively related to their cash holdings, and the value of cash is higher for the D&O insurance. The research of the paper enriches the D&O liability insurance theory and corporate governance theory, and discusses the listing Corporation cash holdings decision theory from a new angle of view, provides empirical evidence and policy recommendations for the management of listing Corporation and practice.