Directors And Executives Liability Insurance,financial Flexibility And Company Value

The 15 th session of the Standing Committee of the 13 th National People’s Congress passed the newly revised Securities Law,which was officially implemented on March 1,2020,accelerating the process of marketization and legalization of China’s capital market.In particular,the further implementation of the stock issuance registration system is a major boost to the establishment of a benign capital market and a major challenge for listed companies.Despite the gradual tightening of listing requirements,financial fraud incidents still occur frequently,The root cause is that the problem of entrusting and acting,which is caused by the separation of powers,leads to managers operating the company against the interests of shareholders,so it is imperative to set up reasonable and correct supervision mechanisms and incentive mechanisms to protect the interests of shareholders.Particularly noteworthy is Directors and Executives Liability Insurance that has been unable to open the market and known by public with the Financial Fraud incident of Lucking Coffee and the disclosure of Ant Group’s huge "IPO Directors and Executives Liability Insurance ",and has been favored by listed companies in the past two years.In order to prevent financing risks,the company reserves a certain level of Financial Flexibility.Financial Flexibility can not only help companies avoid falling into financing difficulties,but also reduce financial risks and ensure the normal operation of the company.However,the level of the Financial Flexibility is not the higher the better,although the high level of Financial Flexibility can solve the company’s financing and financial difficulties,but also means that the company to reserve a wealth of free cash flow and maintain a low level of financial leverage,and the rich free Cash Flow and low level of financial leverage undoubtedly expand the management of rent-seeking space and improve the probability of opportunistic behavior,coupled with the Directors and Executives Liability Insurance covers the risks of directors and executives’ decision-making,condone the abuse of the company’s financial resources and make irrational investments,reduce the Company Value.As a new element of the company’s external supervision mechanism and incentive mechanism,does the Directors and Executives Liability Insurance really play a role in the effectiveness of external supervision and the effectiveness of management incentives to enhance the Company Value? Or is it an opportunist act of shielding the company’s management from jeopardizing the Company Value? Does Financial Flexibility strengthen or weaken the relationship between Directors and Executives Liability Insurance and Company Value? The empirical analysis show that both Directors and Executives Liability Insurance and Financial Flexibility are significantly positively correlated with the Company Value,and Financial Flexibility plays a significant negative adjustment effect in the relationship between Directors and Executives Liability Insurance and Company Value.And in the group of high-Financial Flexibility companies,this negative adjustment effect is stronger,and only by improving the level of Corporate Governance can this negative adjustment effect be weakened.Therefore,in order to better play the external supervision and management incentive effect of Directors and Executives Liability Insurance,the relevant regulatory departments should improve the disclosure system of Directors and Executives Liability Insurance,the companies should strengthen the Financial Flexibility management,In order to improve the level of Corporate Governance,listed companies should coordinate with the internal and external supervision.So that Directors and Executives Liability Insurance can serve the company well,the interests of managers and investors also can be protected well.