Research On The Impact Of Directors’ And Officers’ Liability Insurance On Corporate Violations

With the ever-increasing capital market reform in China,corporate violations have occurred frequently,seriously damaging the interests of investors and causing great distress to society.As the core of corporate governance structure,managers are not only allocators of corporate resources,but also decision-makers of major decisions,and they are closely related to corporate violations.Directors’ and officers’ liability insurance,also known as D&O insurance,is a personal liability insurance that alleviates the risk of managers’ performance of duties,which can transfer compensation incurred by managers due to negligent behavior after litigation to the insurance company to bear.As a new insurance contract,there is still controversy on whether D&O insurance plays the role of supervision or opportunism in Chinese enterprises.The Securities Law’s implementation and advancement has brought about a more uniformity in the duties and obligations of directors and senior executives,and the litigation risks they face have further risen.As a result,the market has been captivated by D&O insurance,providing fresh prospects for growth.In this context,it is of significant theoretical and immediate meaning to discuss the influence of D&O insurance on corporate illegal behavior.From 2011 to 2021 Shanghai and Shenzhen A-share listed companies’ data is adopted to test the correlation between D&O insurance and company violations in this paper.This paper also explores the regulatory effect of equity concentration and property characteristics on D&O insurance and corporate irregularities,and explores the intermediary role of financing constraints,analyst following,and internal regulation in the connection between the two.In this paper,partially observable Bivariate Probit model,instrumental variable method,Heckman two-stage method,propensity score matching method,lag two-stage regression and other methods are used for regression again to test the robustness of the conclusions.The empirical analysis has led to the conclusions:(1)D&O insurance can significantly inhibit the violations of enterprises,and D&O insurance can significantly suppress both information disclosure violations and business violations;(2)In enterprises with concentrated equity,D&O insurance has a more conspicuous deterrent to enterprise violations than those with decentralized equity;(3)The nature of property rights can adjust the relationship between D&O insurance and enterprise violations.In comparison to non-state-owned enterprises,D&O insurance can be a greater inhibiting role in state-owned enterprises against enterprise violations;(4)D&O insurance can restrain corporate violations through three channels: easing financing constraints,increasing analyst following and optimizing internal control.This paper,from an insurance contract viewpoint,broadens the exploration of the elements that can lead to enterprise violations and offers fresh ideas for enterprises to reduce them.At the same time,evidence of the governance impact of D&O insurance in enterprises is provided by this paper,the impacts of D&O insurance on corporate violations are clarified,existing issues and deficiencies are examined,and particular proposals are proposed,which is beneficial for the long-term advancement of D&O insurance in China.