Directors’ And Officers’ Liability Insurance And Credit Spreads Of Bonds

It is a man’s duty to pay his debts.Issuing bonds is one of the most important measures for enterprises to finance.Its function is to alleviate financing constraints,restrict and regulate the business decision-making activities of enterprises,and then build a positive and effective capital market.Bond issuers take the responsibility of repaying principal and interest when due.Li keqiang has a deep understanding of the importance of the bond market.He stressed that "we need to improve the financial system,strengthen financial supervision,Prevent financial risks,maintain financial stability and security,and promote the healthy development of the capital market,especially the bond market".However,the default of "Chaori bonds" started the frequent outbreak of bond default events in China.Allianz,the largest insurance group in Europe,made it clear in its report "directors’ and officers’ liability insurance:current management responsibilities" that the main causes of directors’ liability and officers’ and executives’ liability insurance claims are related to securities and bond issuance in Asia.So,an interesting and worth testing topic is:do bond market participants recognize directors’ and officers’ liability insurance?Is it because of the nesative governance effect,which leads to more bond claims,or is it because of the good bottom-lining effect,which takes the initiative to assume the responsibility and reduce the default loss?However,what role it plays is still unclear and needs to be further discussed.Using a large sample the of Shanghai and Shenzhen a-sharc corporate bonds from 2007 to 2016,we attempts to explore the role of directors’ and officers’ liability insurance in the bond market and its influence mechanism.Specifically,this paper examines whether the purchase of directors’ and executives’ liability insurance increases or decreases the bond issue price.The research finds that:(1)The purchase of directors,and executives’liability insurance will significant reduce the credit spread of bonds,which is still stable after controlling a series of endogenous problems;(2)When the bond contract tenns are not perfect or there is no third-party guarantee,the directors’ and officers’ liability insurance has a stronger inhibitory effect on the bond credit spread;(3)When media supervision is weak or tracking analysts are few,directors’ and officers’ liability insurance plays stronger supervision effects and reduces the credit spread of bonds;(4)When the property right is private or facing financing constraints,the directors’ and officers’ liability insurance plays a stronger bottom-taking effect and reduces the credit spread of bonds.The research results show that in China’s bond market,directors’ and officers’ liability insurance plays a positive role in corporate governance,mainly through the "supervision effect" and"bottom-lining effect" to influence bond issue pricing,and has an alternative relationship with bond contract clause design and third-party bond guarantee,so as to effectively protect the interests of creditors.This paper helps us fully understand the role of directors’and officers’ liability insurance in corporate governance,which is of great significance for the comprehensive promotion of directors’ and officers’ liability insurance,and provides empirical evidence for reducing the cost of bond financing.