A Study On The Impact Of Directors’ And Officers’ Liability Insurance On Corporate Strategy Deviation From A Risk-Taking Perspective

In recent years,China has made high-quality development the main task of its current social development.As a major player in revitalizing the country’s economy,companies should strive to be the first in the phase of high-quality development.And to achieve this new development,it is necessary to take risks,look for various opportunities for innovation and investment and develop strategies that are in line with their own development and the requirements of society.Directors’ and officers’ liability insurance is a special kind of professional liability insurance to underwrite the risks of enterprises.While directors’ liability insurance,which originated in developed economies such as Europe and the United States,has become increasingly mature,with a coverage rate of over 90%,the insurance coverage rate in China is still not higher than 10% after the introduction of directors’ liability insurance for more than 20 years,indicating that directors’ liability insurance has not yet been widely accepted.Therefore,this paper attempts to examine the impact of directors’ and officers’ liability insurance on the deviation from corporate strategy from the perspective of corporate risk-taking,in order to provide empirical evidence for corporate strategic decision-making choices and corporate governance.This paper uses data from Shanghai and Shenzhen A-share listed companies from2010 to 2020 to empirically analyse the relationship between directors’ and officers’ liability insurance,the level of corporate risk-taking and corporate strategic deviation.The empirical study through regression analysis methods found that: the purchase of directors’ liability insurance can significantly contribute to corporate strategic deviation,and the mechanism of corporate risk-taking in the influence of directors’ liability insurance on corporate strategic deviation is a partial mediating effect,i.e.a company can directly lead to an increase in strategic deviation by purchasing directors’ liability insurance,while at the same time,the purchase of directors’ liability insurance causes the company’s risk-taking capacity,which further increases the firm’s strategic deviation.This finding holds true after controlling for possible endogeneity issues and changing the measures of the core variables.Further research found that the positive impact of directors’ liability insurance on corporate strategic deviance was relatively more pronounced among non-state-owned and larger firms;there was also a significant difference in corporate strategic deviance before and after the purchase of directors’ liability insurance,showing that the purchase of directors’ liability insurance significantly increased a firm’s own risk-taking ability and propensity to deviate strategically.In summary,this paper further extends the research on the impact of directors’ liability insurance on corporate strategy from a risk-taking perspective.Combined with the findings of this paper,relevant authorities can encourage and guide companies to actively introduce directors’ liability insurance and give full play to the positive role of directors’ liability insurance in corporate governance;at the same time,the provisions of the legal regime for directors’ and officers’ liability insurance and the definition of liability should be clarified to curb the emergence of moral hazard and opportunistic behaviour of management,so as to better utilize the governance effect of directors’ and officers’ liability insurance.