The Impact Of Directors’ And Officers’ Liability Insurance On The Quality Of Accounting Information

Accounting information is the "language" of the capital market.At the micro level,accounting information conveys the financial and operating conditions of market participants,provides reference for information users to make decisions,and facilitates the transactions of each micro subject.At the macro level,high-quality accounting information can alleviate the problem of information asymmetry,help capital pricing,improve resource allocation efficiency,and promote the healthy and orderly development of the capital market.For a long time,the governance of accounting information distortion and even financial fraud has been deeply concerned by the academic and practical circles.Improving internal and external governance mechanisms and easing agency conflicts are the general direction to solve such problems.Directors’ and Officers’ Liability Insurance is an insurance product introduced late and not widely available in our capital market.It not only has the essence of transferring directors’ and officers’ normal performance risk,but also plays a certain governance effect on the insured company.It is a new external governance mechanism.So,what kind of governance effect will D&O liability insurance have on the quality of accounting information? A small number of scholars have explored this issue,but no unanimous conclusion has been reached.With the continuous development of Chinese capital market,the continuous improvement of relevant legal system and the continuous enhancement of investor protection awarenes s,the performance risk of directors and officers is also rising,and their demand for D&O liability insurance is also increasing,that is,D&O liability insurance is in rapid development.Therefore,in the context of our system,it is of urgent practical significance to explore the governance effect of D&O liability insurance on the quality of accounting information,improve the internal governance environment to guide it to play a positive effect and achieve a good interaction effect of internal and external governance mechanisms.In view of the above problems,this paper takes the data of Chinese A-share listed companies from 2009 to 2021 as samples,constructs a multiple regression model,and empirically tests the relationship between D&O liability insur ance and the quality of accounting information,and draws the following four conclusions:(1)Purchasing D&O liability insurance can improve the quality of accounting information.(2)The quality of executive compensation and internal control will strengthen the positive correlation between D&O liability insurance and the quality of accounting information.(3)Agency cost and innovation efficiency play a mediating effect between D&O liability insurance and the quality of accounting information.The purchase of D&O liability insurance can reduce the agency cost 、promote innovation efficiency,then improve the quality of accounting information.(4)Further research shows that the positive effect of D&O liability insurance on accounting information quality is more stable and significant in state-owned enterprises.The conclusion of this paper shows that the incentive and external supervision effect of D&O liability insurance plays a positive role in the governance of accounting information quality.Based on the incentive effect,on the one hand,the purchase of board liability insurance can enhance the motivation of the management to act as insurance beneficiaries,relieve the risk aversion of the management and make them think more about the long-term interests of the company,so as to pursue the real improvement of the company value.This motivation is in line with the objectives of shareholders and alleviates the agency conflict.On the other hand,the purchase of D&O liability insurance can attract and retain outstanding talents,improve their level of risk bearing,stimulate their willingness to innovate and actively manage,and achieve the improvement of performance,making it easier for management to meet the compensation contract standards.This will inhibit the motivation of management to manipulate earnings for the purpose of fulfilling performance appraisal and meeting financial expectations.That is,the purchase of D&O liability insurance makes the management "unwilling and unnecessary" to manipulate accounting information,which plays a positive role in improving the quality of accounting information.Based on the effect of external supervision,the company purchased D&O liability insurance and introduced a professional risk management organization,an insurance company.As a rational person,in order to avoid compensation on behalf of the insurance company,it would carry out strong supervision and constraints on the insurance company,and restrain the management’s earnings management and even financial fraud,which would lead to increased litigation risks.That is,the purchase of D&O liability insurance makes the management " not dare and not able" to manipulate accounting information,and plays a positive role in improving the quality of accounting information.Finally,based on the research conclusions,this paper puts forward suggestions from three aspects: improving the legal system related to D&O liability insurance,improving the internal governance mechanism of listed companies and improving the product design of D&O liability insurance.