Directors' And Officers' Liability Insurance, Audit Opinions And Bank Loan Decision

As one of the most important financing methods for Chinese enterprises nowadays ,the bank has provided a large amount of money for the value enhance of the enterprise for a long time.The fact of the modern company operation is the flow of founds,so it is the most rational choice to maintain a good relationship with banks,and with the help it's money to maximize the value of enterprise. So it is the most important target for the enterprise to get the favor of the bank and enhance the ability of bank credit.With the increasing pressure of China's economy and the stringent regulatory policies,there is a large number of lawsuits for the listed companies and their executives in recent years, and the directors and executives of the company are faced with increasing practice risk.In this context, the growth of the practice risk has led to the reality demand for Directors' and Officers' Liability Insurance.As a hedging instruments to hedge the unexpected risk,D&O insurance can compensate the investors instead of the Directors and Officers when they face the litigation compensation,so it can relieve the pressure of directors and officers and encourage them to make decisions bravely.D&O insurance has draw much attention of the theoretical and practical realm.Foreign scholars have achieved a wealth of research results mainly on the respect of investment efficiency, firm performance, financial effect and agency conflict.However, the existing research is mainly based on the reality of the foreign society,there is no consensus opinion about what kind of governance effect it will produce in China.Not only few research about the D&O insurance in domestic, but also the association between the D&O insurance and bank credit decision has not been discussed.How can the use of the D&O insurance may affect the bank loan decision?We haven't know whether it enhance the confidence of creditors and thus increase the supply of credit, or pass the risk signal and cut credit rationing.It is still not yet known.This paper selects the data during 2009-2014 as the initial research sample, from the point of the bank credit decision .This paper examined how audit opinions affect bank credit decision at first. Then we investigate the moderating effect of the D&O insurance on the relationship between audit opinion and the bank loan scale. The results show that next year's bank loan will decrease significantly for those companies which receive non-standard audit opinions. More importantly, D&O insurance strength the negative correlation between non-standard audit opinions and next year's the bank loan .These results show that D&O insurance transmits the opportunism signal which causes the bank made an adverse selection.