Research On Management Incentive And D&O Liability Insurance

As a risk transfer mechanism,Directors' and Officers'(D&O)liability insurance not only effectively transfer and spread the risks of shareholder's lawsuit,but also play an important role in corporate governance.From the perspective of corporate governance,based on data of Chinese A share companies from 2002 to 2015,this thesis research the effect of company introduce D&O liability insurance on management incentive mechanisms.Then on this basis,this paper further study on the interaction effect of D&O liability insurance and management incentive effect on the value of the company.The study found that relationship between D&O liability insurance and monetary compensation management in China's listed company is "complementary".This implies that the higher management pay,the company more likely to buy D&O liability insurance.And the relationship between D&O liability insurance and management equity incentive is "alternative".This means the introduction of D&O liability insurance is negatively correlated with the level of managerial ownership.In addition,the results indicate that the company willingness to buy D&O liability insurance is close relationship with their level of supervision.If company have right and perfectly supervised system,their more likely to buy D&O liability insurance.In the aspect of the interaction term between D&O liability insurance and management incentive,this paper shows that the introduction of D&O liability insurance enhances the executive compensation incentive levels and promotes the value of enterprises.However,the interaction term between D&O liability insurance and managerial ownership is negatively and not significant in statistically.From the perspective of the nature of enterprise,the results shows that the governance effect of D&O liability insurance in non-state-owned enterprises is better than state-owned enterprises and significantly improved the effect of monetary compensation incentive effect.However,whatever the nature of the firm,the interaction effect between D&O liability insurance and management shareholding is negatively and not insignificant in statistically.Further analyses suggest that the governance effect of D&O liability insurance is closely related to the institutional environment.Regression results show that D&O liability insurance plays a positive role in company governance and significantly enhances the enterprise value in the area with good institutional environment.However,in the poor institutional environment,D&O liability insurance is positively correlated with firm value but not significant.In addition,comparing to poor institutional environment,the introduction of D&O liability insurance enhances the salary incentive effect of management is more obvious in good institutional environment.Moreover,in poor institutional environment,the interaction item between D&O liability insurance and management shareholding is negatively and insignificant in statistically.It's indicating that the "asylum" role of D&O liability insurance will lead to moral hazard of management and reduce the equity incentive effect in poor institutional environment areas.