D&O Liability Insurance, Cash Dividend Policy And Agency Costs

Cash dividend is an important means for listed companies in returning investors. It has great influence on investors’ enthusiasm and initiative. However, there for a long time, cash dividend policy has many kinds of problems, such as the low dividend yield and the poor stability. Along with the introducing of relevant documents in recent years, the stock market in China has been improved to a certain extent. Thus, in the new policy background,studying the economic consequences of cash dividend payments has important theoretical and practical significance. Among the studies of corporate governance and cash dividend policy, the two kinds of agency conflicts have always been the focus of attention. Agency costs produced by the agency conflicts are the direct object of cash dividend payment, and the solving of agency conflicts is the embodiment of good governance structure. Therefore,this article will first study the relationship between cash dividend policy and the two kinds of agency costs. D&O liability insurance was introduced as internal governance mechanism. It originated in the 1930s in America, and has been existing more than 80 years. Studies of it have already been relatively mature in Europe and America,and research results are quite rich. Studies abroad are generally believing that the function of D&O insurance in corporate governance is double-aged. However, China introduces this insurance in 2002. It is still in the primary stage of development. Considering the special institution background of Chinese capital market, what kind of function the D&O insurance will have in governance structure remains to be proved.As required, the article makes the sample interval between 2009-2015. According to the dividend agency theory, corporate governance theory, insurance policy and monitor hypothesis. I will first research the effect of cash dividend policy on two kinds of agent cost.On the basis of that, introducing the D&O insurance as regulated variable, and the article will analysis what regulating effect the D&O insurance will give. The empirical results show that: The higher the listed companies’ cash dividend payment rate is,the lower the two types of agency costs are. It embodies the governance effect of cash dividend policy; After introducing D&O insurance as regulating variable, the governance effect of cash dividend policy will expand further, and the two kinds of agency cost classes will reduce further.What’s more, the monitoring hypothesis of D&O insurance has been verified. At the same time, this article will provide empirical evidence for the governance of listed companies in the empirical level.