Directors’ And Officers’ Liability Insurance, Demand And Impact-base On Board Characteristics And Earnings Management

Directors’ and officers’(D&O) liability insurance, which was born in the United States, is very popular among many foreign countries. And in China, in order to protect the rights and interests of internal directors and senior management personnel, there have been more and more companies started buying D&O liability insurance from insurance company abroad since 2002, when relevant regulations came out. Although so far the companies that choose to buy D&O liability insurance account for a very small portion, more and more companies are buying the insurance every year.In this essay, D&O liability insurance purchase data is collected manually, company stock trading data, companies’ financial data and board governance structure data are searched from relevant database. These data make up a panel data set from 2002 to 2014 of listed companies. Using this panel data set, this article develops and tests hypotheses regarding the relationship between directors’ and officers’(D&O) insurance purchase and firm size, governance characteristics, and business risk. Estimated models examine two aspects of the demand for D&O insurance: ownership of insurance and the choice of insurance policy limits among owners. We model these demand measures as depending on the firm characteristics discussed above, and then compare the results with the theoretical predictions to research on China’s actual situation.Finally, examining the impact of D&O liability insurance protection to the company’s board characteristics and the earnings management, the thesis finds that D&O liability insurance protection may effect board characteristics, and maybe effect the company’s earnings management.