Research On Director' And Officers' Liability Insurance, Managerial Power And Ineffective Investment

In recent years, with the impact of economic pressure from domestic and abroad especially after the outbreak of the financial crisis in 2008, China' s enterprises are facing great challenges——the problem of inefficient investment affect the development of enterprises. Most scholars believe that the excessive managerial power will cause the inefficient investment of enterprises, about the above problem, academia tends to solve it by the internal mechanism of corporate governance, but rarely considers the role of the external mechanism of corporate governance. Investment efficiency is related to the improvement of enterprise value and the increase of shareholder's wealth, which is closely related to the manager' s investment strategy. Therefore, in the development of an enterprise, to effectively maintain the positive impact of managerial power on investment decision while ease its negative impact is one of the key and hot topics of corporate governance in recent years.Directors' and Officers' Liability Insurance system has developed in developed countries for nearly one hundred years, but it only has ten years' history in China' s capital market. At present, the insurance rate of China' s listed Companies is relatively low,according to manual statistics, only about 20% of the enterprises bought Directors'and Officers' Liability Insurance,however its coverage in developed countries reached 95%.The role of Directors' and Officers' Liability Insurance in the corporate governance is different, so it is necessary to explore whether Directors' and Officers' Liability Insurance is applicable to the rapid development of China's capital market in the economic transition period. This paper studies the mechanism of managerial power influence on investment efficiency from the perspective of Directors' and Officers' Liability Insurance,and enriches the empirical research of corporate governance theory.Based on the theory of Directors' and Officers' Liability Insurance, information asymmetry theory, principal-agent theory, free cash flow hypothesis, this paper takes China's listed companies as the initial sample from 2009 to 2015, using normative analysis and empirical analysis to explore the relationship. First of all, explore the impact of managerial power on investment distortions, further researching the impact of the introduction of listed companies Directors' and Officers' Liability Insurance on the relationship between managerial power and inefficient investment. In this paper, the following conclusions are drawn: First, there is a clear positive correlation between managerial power and inefficient investment, which shows that with the increase of managerial power, the more likely to cause inefficient investment. Secondly, there is a significant negative correlation between the cross of Directors' and Officers' Liability Insurance and the managerial power and enterprise inefficient investment, which shows that the introduction of Directors' and Officers' Liability Insurance can weaken the negative effect of the managerial power on the investment efficiency.The conclusion of this paper deepens the understanding of the external supervisory role of Directors'and Officers'Liability Insurance,and explore the governance mechanism of the inefficient investment caused by excessive managerial power from a new perspective. It not only riches the study of insurance theory, but also provides an important empirical evidence for the development of Directors' and Officers' Liability Insurance in our country.