Research On The Effect Of Directors’ And Officers’ Liability Insurance On Enterprise Risk-taking

In recent years,the exposure of Ruixing Coffee’s financial fraud and the Kangmei Pharmaceutical case and the implementation of the new “Securities Law”have pointed the finger at civil disputes between small and medium investors and corporate managers.This directly affects the willingness of managers to take risks,which in turn leads to the problem of low enterprise risk-taking.In order to encourage managers to perform their duties conscientiously,take responsibilities actively,and enhance enterprise risk-taking,many companies and scholars have turned their attention to the governance effect of Directors’ and Officers’ Liability Insurance.The original intention of the establishment of Directors’ and Officers’ Liability Insurance is to hedge practice risks,encourage managers to seize investment opportunities,enhance enterprise risk-taking,create more value for enterprises,and exert an "incentive effect".However,it is undeniable that the fundamental role of Directors’ and Officers’ Liability Insurance may also induce moral hazard problems for managers,thereby making improper investment behaviors.Although it increases enterprise risk-taking,it damages the interests of companies and shareholders,and triggers "opportunistic effect".Based on the above thinking,this paper analyzes whether Directors’ and Officers’ Liability Insurance affects the risk-taking of enterprises through "incentive effect" or "opportunistic effect" through theoretical and empirical research.This paper takes China’s 2013-2019 A-share listed companies in Shanghai and Shenzhen as research samples,uses OLS and fixed-effect models to empirically analyze the impact of insured Directors’ and Officers’ Liability Insurance on enterprise risk-taking,and then analyzes the nature of property rights and corporate life cycle.The moderating effect of the relationship between the two.Furthermore,the variables of enterprise investment efficiency and enterprise value are introduced to study the internal mechanism and economic consequences of Directors’ and Officers’ Liability Insurance and enterprise risk-taking,so as to verify whether the improvement of Directors’ and Officers’ Liability Insurance on enterprise risk-taking is based on "incentive effect" or "opportunistic effect".Finally,the robustness test of the empirical results is carried out by replacing the measurement method of enterprise risk-taking and Heckman’s two-stage method,and at the same time,the endogeneity problem is solved to a certain extent.Through the research,it is found that Directors’ and Officers’ Liability Insurance can effectively improve the risk-taking of enterprises through the "incentive effect",but its effect will be different due to the nature of property rights and the life cycle of enterprises.Among non-state-owned enterprises,enterprises in the growth period and recession period,the Directors’ and Officers’ Liability Insurance has a more significant improvement in the risk-taking of enterprises.The empirical results show that Directors’ and Officers’ Liability Insurance can restrain the inefficient investment behavior of enterprises,alleviate the problem of insufficient investment,and enhance the value of enterprises,so it rejects the "opportunistic effect".Based on the research conclusions and the actual situation of low coverage of this insurance in China,the following policy recommendations are put forward: listed companies should purchase Directors’ and Officers’ Liability Insurance in light of the specific conditions of the company to increase the insurance coverage;relevant departments should improve supporting laws and regulations and vigorously promote this insurance;Insurance companies need to adjust their marketing strategies,strengthen the supervision and management of insured companies,and truly give full play to the incentive effect of Directors’ and Officers’ Liability Insurance.