Directors And Executives Liability Insurance And Litigation Risk

With the continuous strengthening of the domestic legal environment,the awareness of rights protection of investors has gradually increased,and the responsibilities and risks faced by directors and senior executives due to losses caused by unintentional factors have also increased.Under this background,the new insurance of directors’ senior executives’ liability insurance has begun to enter the field of vision.In 2002,the directors’ liability insurance was first introduced into China,and in 2002,"Corporate Governance Guidelines for Listed Companies" was issued,which clearly stipulated for the first time that listed companies could purchase liability insurance for directors’ executives.Since the new Securities Law in 2006 clearly stipulates that directors,supervisors and senior executives should bear corresponding responsibilities for false public information,directors,supervisors and senior executives face greater risk of being sued,and the demand for directors’ liability insurance in the market increases accordingly.In 2006,Several Opinions on the Reform and Development of Insurance Industry issued by the State Council also encouraged the development of director liability insurance.However,as of the end of December 2019,according to statistics,the proportion of listed companies in China that have purchased directors’ senior management liability insurance is still less than 10%.The original intention of directors’ senior management liability insurance is to hedge the external litigation risks faced by directors’ senior management,so as to inspire them to innovate boldly and display their talents.But why is the coverage rate of directors’ senior management liability insurance not high in China? Does the company’s purchase of directors’ liability insurance enhance or weaken the litigation risk? In order to verify the impact of directors’ liability insurance on litigation risk,this paper selects Shanghai and Shenzhen listed companies from2005 to 2019 as samples,and collates the data of directors’ liability insurance,corporate litigation arbitration and corporate financial indicators from CNRDS database,Wind database and CSMAR database.Through descriptive statistics,correlation analysis and tobit regression,this paper studies the impact of directors’ liability insurance on corporate litigation risk and its influencing mechanism.Empirical research shows that the introduction of directors’ liability insurance has a significant impact on corporate litigation risk: the purchase of directors’ liability insurance will significantly increase the amount and number of lawsuits involved in the company;The introduction of directors’ liability insurance is positively correlated with litigation risk.Firstly,the purchase of directors’ senior management liability insurance has a significant negative relationship with internal control of the company,indicating that the introduction of directors’ senior management insurance will worsen the internal governance environment of the company;Secordly,The purchase of directors’ senior management liability insurance has a significant negative relationship with the company’s underinvestment and a significant positive relationship with the company’s over-investment,indicating that the introduction of directors’ senior management insurance will inhibit the company’s underinvestment,but will stimulate the company’s over-investment;Thirdly,the robust test in this paper mainly adopts Heckman two-step method and PSM tendency matching method to solve the endogenous problem of sample self-selection of listed companies with directors’ senior management liability insurance,and the test results are consistent with the empirical results.