Directors And Officers Liability Insurance,Management Incentives And Corporate Risk-taking

Enterprise risk taking is critical to business development.The purpose of setting up Directors and Officers Liability Insurance(hereinafter referred to as "D&O liability insurance")is to diversify the risk of management,which will also affect the risk-taking of the enterprise.Whether D&O liability insurance can play a role in enhancing enterprise risktaking is the main problem of this paper.Enterprise risk taking refers to the choice preference when it is necessary to make decisions about risky projects,and the willingness to bear potential losses in order to obtain high returns.For the market,corporate risk-taking promotes technological innovation,affects the growth of social productivity,helps to promote sustainable social and economic growth,and is the basic force driving economic benefits to rise.For firms,corporate risktaking,riskier investment policies lead to increased firm value and higher overall growth rates.Evidently,corporate risk-taking is highly vital.Because of the emergence of the principal-agent problem,managers are usually risk-averse,and employees’ willingness to bear business risks is lower than that of investors.In the first half of 2020,Ruixing Coffee Company exposed financial fraud,which gathered widespread discuss.Simultaneously,more people have paid attention to Directors and Officers Liability Insurance(hereinafter referred to as "D&O liability insurance")purchased by Ruixing Coffee.D&O liability insurance plays an important role in risk sharing in corporate governance.This kind of insurance first appeared overseas,and it is relatively mature today,but it appeared relatively late in China,and it only began to appear in 2002.It is still very immature.The initial purpose of D&O liability insurance is to fully sharing risk and reducing potential losses that may be caused by executives’ misconduct.Discussions on whether this insurance is effective have been inconsistent.On the one hand,if the D&O liability insurance is completely effective,it can relieve the worries of directors,supervisors and senior executives,and encourage executives to invest boldly,be brave in innovation,and no longer shy away,which may be positive.On the other hand,the existence of D&O liability insurance may lead to moral hazard,and executives take opportunistic behaviors,thereby inhibiting the level of corporate risk-taking,which has a negative effect.In addition,the development history of this imported product in our country is short,the insurance coverage is low,the information disclosure system and insurance standards are still not unified,and the impact of purchasing D&O liability insurance on enterprises needs to be further studied.The article uses the data of Shanghai and Shenzhen A-share non-financial listed companies as the research object.Basic regression research finds that D&O liability insurance can increase corporate risk-taking.At the same time,management incentives will also play a certain role in governance.Using management incentives as a moderating variable,it is found that the influences of management incentives and D&O liability insurance on enterprise risk taking are mutually replaceable.That is to say,after the introduction of management incentives,the effect of D&O liability insurance to enhance corporate risk-taking has been reduced.Whether it is compensation incentives or equity incentives,the result is the same.Next,the endogeneity problem was solved by means of PSM propensity score matching,instrumental variable regression,and replacement of risktaking measures,and it was found that the null hypothesis was still supported.In the mechanism test,this thesis holds the view that D&O liability insurance promotes the rise of corporate risk-taking through two channels: reducing earnings management and improving the sensitivity of compensation performance.In the heterogeneity test,it is found that in the eastern region,regions with a high level of marketization,state-owned enterprises,non-listed companies,and companies with dispersed equity,the effect of director liability insurance on improving corporate risk-taking is more obvious.Further research on the consequences of D&O liability insurance to enhance corporate risk-taking,it is found that the existence of D&O liability insurance improves corporate investment capacity and corporate performance.The significance of this study lies in the innovative analysis of its impact on enterprise risk taking from the perspective of D&O liability insurance,which enriches the basic theoretical research results in the field of risk taking impact and its causes.In addition,there are few researches on D&O liability insurance by Chinese scholars at present.This thesis expands the research in this field.D&O liability insurance can indeed play the role of insurance risk sharing,so enterprises can purchase suitable D&O liability insurance as appropriate.Insurance institutions should innovate insurance products and increase publicity efforts.The government should create a sound legal and regulatory system to promote the development of D&O liability insurance growing up.