Directors' And Officers' Liability Insurance;Financial Flexibility And Investment Efficiency

In recent years, China's economic growth rate is slowing down, and downward pressure is increasing. The economic environment is becoming increasingly complex, and maintaining financial flexibility has become an important financial strategy. Maintaining financial flexibility of the enterprise in the face of external risks to actively respond to through the crisis. To maintain a certain flexibility in the financial sector will have a lot of free cash flow, which provides a guarantee for the opportunity to seize investment opportunities and helps to curb investment in enterprises. Because of asymmetric information and agency problems, financial flexibility may also lead to inefficient investment. The directors' and officers' liability insurance(D&O insurance) has been developed for more than ten years in our country, and its corporate governance is being paid more and more attention by the academic and practical circles. Can the D&O insurance play a governance role between financial flexibility and enterprise investment efficiency? It's worthy to further study and discussion.Based on the perspective of financial flexibility, we argued and tested the realationship between financial flexibility and enterprise investment efficiency relationship,and further research on financial flexibility and enterprise investment efficiency between the changes due to the introduction of D&O insurance. Using a data of 2008-2015 China's A shares of listed companies in Shanghai and Shenzhen Stock Market as the research sample, we tested the relationship between D&O insurance, financial flexibility and investment efficiency. We found that: there was a negative correlation between the lack of financial flexibility and enterprise investment. Maintaining financial flexibility can restrain the shortage of investment, and that's the reason may be due to financial flexibility to provide sufficient free cash flow, which provides a guarantee for the enterprise to seize the good investment opportunities; excessive investment in financial flexibility and enterprise behavior are positively related, indicating the enterprise's financial flexibility will lead to excessive investment behavior, which may be due to information asymmetry and agency problems, with more free cash flow increases the management possibility of egoism.Further study found that the D&O insurance have played a positive role on these relations.Specifically, the D&O insurance can weaken the positive relationship between financial flexibility and excessive investment of enterprises. It can also enhance the financial flexibility of insufficient investment inhibition, indicating that the D&O insurance play a better role of governance. By using Heckman two-step method, the sensitivity of indicators and other methods to test the robustness, the conclusions did not change significantly in this paper. The conclusions of this study not only enriches the research on enterprise financial flexibility, but also deepen further understanding of D&O insurance for directors of executive governance, and provides some empirical evidence for D&O insurance in its development and promotion of our country.