Research On D&O Insurance,Diversification And Corporate Performance

Diversification as a business growth strategy has been the focus of academics and practitioners. Emerging markets and transition economy provide market environment different from the western developed country for scholars to study diversification. Based on the situation of our country, the relationship between diversification and corporate performance is no consensus, and there are mainly diversification premium, diversification discount and diversification unrelated, etc. In addition, scholars have also discussed the impact of internal corporate governance mechanisms such as the nature of the controlling shareholder, ownership structure etc. on corporate diversification and performance. But few scholars study the impact of external corporate governance mechanisms on diversification.Directors and officers liability insurance (hereinafter referred to as "D&O Insurance") originated in the United States in the1930s, a kind of occupation liability insurance. So far, the D&O Insurance has been pretty mature in Western countries, and the related research is rich. Overseas studies show that the D&O Insurance is "double-edged sword." to corporate governance. D&O Insurance was introduced into China in2002, still at the stage of development, and the coverage rate is not high in the listing corporation. The role of D&O Insurance in corporate governance is not clear under the market environment and the legal system in China, which needs to be studied.This paper selects data of year2008to year2012of listed company in Shenzhen and Shanghai stock market as samples, the D&O insurance as a company external governance mechanism, combined with agency theory, insurance theory, corporate governance theory to study the relationship among D&O Insurance, diversification and corporate performance with empirical and normative analysis. The empirical results are as follows:first, D&O Insurance and diversification are negative correlation, which indicates that the D&O Insurance inhibited the diversification behavior of enterprises; second, there is a significant negative relationship between diversification and corporate performance, so the behavior of diversification undermines corporate performance; finally, D&O Insurance positively affected corporate performance which indicate the D&O Insurance can effectively improve the performance of diversification. To some extent, this paper demonstrates the D&O Insurance has played a positive role in the corporate governance.