Research On The Influence Mechanism Of Directors’ And Officers’ Liability Insurance On Real Earnings Management

In the post-pandemic era,enterprises face numerous uncertain "systematic risks."The economy is in a downturn,the capital market is undergoing a transitional phase,SinoU.S.trade is fraught with friction,and increased uncertainty in economic policy and external factors are impacting the sustainability of earnings and earnings management for businesses,thereby testing the risk governance and contingency capabilities of managers and regulators.Insurance,as a professional means of risk mitigation and transfer,can replace inadequate risk management methods by enhancing the efficiency of risk management.Since the insured objects of insurance are decision-makers and executors of earnings management in businesses,the relationship between Directors’and Officers’Liability Insurance and earnings management has attracted considerable attention,and there is still controversy surrounding their relationship at a theoretical level.Based on the data from Chinese A-share listed companies from 2009 to 2020,this study finds that the subscription of Directors’ and Officers’ Liability Insurance has a negative impact on real earnings management,and this relationship still exists after a series of robustness tests.Further analysis reveals the following:(1)Directors’ and Officers’ Liability Insurance attracts external market supervision through the "eyecatching effect," and then negatively affects real earnings management activities through analyst and media attention intermediaries.(2)The negative impact of Directors’ and Officers’ Liability Insurance on real earnings management is more significant in nonstate-owned enterprises.(3)The negative impact of Directors’ and Officers’ Liability Insurance on real earnings management is more significant in companies with weak industry competition.(4)Directors’ and Officers’Liability Insurance(external supervision)and internal control index(internal monitoring)coordinate with each other,jointly negatively affecting real earnings management.(5)Directors’ and Officers’Liability Insurance(external supervision)and equity incentive(external motivation)coordinate with each other,jointly negatively affecting real earnings management.The developmental stage of Directors’ and Officers’ Liability Insurance in China,combined with the weak governance context of corporate governance,has created a paradoxical effect on the role of Directors’ and Officers’ Liability Insurance in promoting real earnings management.This provides insights for the development of China’s insurance industry and other companies and is of value for developing countries like China to adopt insurance-based governance measures.This study provides new empirical evidence and analytical perspectives for the study of Directors’ and Officers’ Liability Insurance and earnings management,while also highlighting the governance advantages in weak governance contexts.