The Research On Mechanism Influence Of Directors’ And Officers’ Liability Insurance To Enterprise Value

The separation of ownership and management of the modern corporation,the inconsistency between the owner and the manager and the asymmetric information which leads toprincipal-agent problem.A sound corporate governance mechanism is an important guarantee to reduce agency conflicts and enhance enterprise value.The board members and senior managers are the main body of the direct implementation of corporate governance,and the allocation of rights,responsibilities,obligations and risks directly affects the efficiency of corporate governance.Especially with the development of economic globalization and network information technology,the internal and external environment of enterprise development is changing rapidly,the degree of competition among enterprises is increasing,and the business risk is increasing.The board of directors and senior management personnel of the "limited rationality" may lead to mistakes in decision-making,shareholders may seekclass action lawsuit,damage the initiative of the management in decision-making,turn the management strategy to the conservative where the corporate would miss many opportunities,in general has an adverse impact on the enterprise value.In order to effectively solve the management problems company directors and executives faced in the management activities,directors’ and officers’ liability insurance has become an important tool for the governance of listed companies to avoid risks.However,as an important mechanism to balance the rights and interests of directors and senior managers,it’s necessary to do research bytheoretical analysis and empirical test to find out that whether directors’ and officers’ liability insurance is helpful to improve corporate governance and enhance corporate value,or exacerbate the opportunistic behavior of directors,damage the value of the enterprise.Based on the perspective of corporate governance,this paper systematically analyzes the internal mechanism,the effect path and the degree of influence of directors’ and officers’ liability insurance on the enterprise value.The main research work is as follows:(1)The internal mechanism analysis of directors’ liability insurance affecting enterprise value.Abstracted from the relevant literature,this paper constructs the theoretical framework of the impact of directors’ and officers’ liability insurance on corporate value,and analyzes the possible influence from the positive and negative aspects.The positive influence come from two aspects,the improvement of internal governance andthe reinforcement of the external supervision,from which the directors’ and officers’ liability insurance can have a positive impact on corporate governance,thereby enhancing the value of the enterprise.First of all,directors’ and officers’ liability insurance can encourage management to actively participate in business decision-making activities,reduce the risk of legal accusation of the management,effectively attract high-quality management personnel,improve the competitiveness of enterprises.Secondly,directors’ and officers’ liability insurance introduce insurance company as the business activities of the external supervisors,insurance companies and insurance in the review period before the insurance on the continuous supervision of listed companies,can reduce agency cost,improve enterprise value.The negative influence comes from aspects like risk transfer and executive opportunism behavior,it puts forward purchase directors’ and officers’ liability insurance for directors after transfer,management does not undertake to perform their duties which would lead to accusation of irresponsible behavior,may cause moral risk management,intensify executive opportunism,result in damage to the enterprise value.(2)The empirical testbased on PSM studies the effect of directors’ and officers’ liability insurance on the value of the corporation.On the basis of the above theoretical analysis framework,this paper puts forward the hypothesis of the influence of directors liability insurance on corporate value,and selects the data of Listed Companies in China’s Shanghai and Shenzhen stock markets as samples from 2007 to 2015.There are many factors affecting the value of the enterprise,in order to make sure the difference of the value of the enterprise is the result of the directors’ and officers’ liability insurance,this study adopts the method of propensity score matching(propensity score matching method,PSM),from the ownership structure,board characteristics and enterprise characteristics,control endogenouscharacteristics that influence the purchase decision by directors liability insurance,through the calculation of the propensity score the high dimensional feature into an index variable,which makes multiple matching possible,and through the matching test check the "net effect" of directors’ and officers’ liability insurancepurchase decision on the enterprise value.The empirical results show that purchasing directors’ and officers’ liability insurancecan significantly enhance the value of the company,regardless of financial measurement or accounting performance measurement.A similar conclusion is obtained by expanding the matching number of nearest neighbor and reducing radius of the matching.The results show that the directors’ and officers’ liability insurance for directors has a positive impact on the improvement of enterprise value.The research results reveal the comprehensive governance effect of directors liability insurance,and provide the empirical evidence of the impact of directors’ and officers’ liability insuranceon corporate value.(3)The countermeasures and suggestions of perfecting the directors’ and officers’ liability insurance from the perspective of corporate governance.In this paper,the author summarizes the practice of directors’ and officers’ liability insurance system in China,and points out the special institutional and cultural background,legal environment and agency problems.Especially in our country the legal system is not standardized with very little attention paid to the protection of investors,incomplete corporate governance mechanismand theunreasonable insurance system localization design,all these factors have seriously hindered the development of the board of directors liability insurance.Based on the conclusions of empirical research,this paper puts forward some suggestions on how to improve the directors’ and officers’ liability insurance system of directors from three aspects: political environment,internal governance and insurance companies.