Directors’ And Officers’ Liability Insurance,directors’ And Officers’ Characteristics And Corporate Financial Leverage

In recent years,with the implementation of the new securities law,the securities market system has been gradually improved,and companies will face more litigation pressure.Judicial cases such as the misrepresentation of Kangmei Pharmaceuticals have not only sounded a "wake-up call" to all listed companies,but also made domestic companies gradually realize the necessity of purchasing directors’ and officers’ liability insurance to spread the practice stress.There are three mainstream theories of corporate governance effects on directors’ liability insurance in existing studies.The first one is the "management risk aversion hypothesis",which believes that directors’ liability insurance can improve corporate performance by spreading the risk of management’s practice and making managers more active in implementing corporate decisions;the second one is the "external monitor hypothesis",which believes that insurance companies have The third one is the "moral hazard hypothesis",which assumes that directors’ liability insurance weakens principals’ constraints on management and thus raises the moral hazard problem of managers,and believes that in companies with directors’ liability insurance,management will The hypothesis is that the management of a company insured with directors’ liability insurance will engage in opportunistic behavior such as over-investment against the interests of the company.So,what kind of governance effect can directors’ liability insurance have in the relationship between directors’ liability insurance and corporate financial leverage?As an important measure of management’s governance effectiveness,director characteristics can significantly affect firm performance and the level of internal governance.What is the moderating role of directors’ and supervisors’ characteristics in the relationship between directors’ liability insurance and financial leverage?Currently,there are few studies on directors’ insurance and financial leverage in China.This paper takes corporate financial leverage as an entry point to explore the relationship between directors’ insurance and financial leverage to provide a new basis for the corporate governance effects of directors’ insurance in China.Taking the A-share listed enterprises in China from 2002 to 2021 as a sample,this paper incorporates directors’ and officers’ liability insurance,directors’ and supervisors’ characteristics and corporate financial leverage into the same research framework,and empirically examines the impact of directors’ and officers’ liability insurance on corporate financial leverage and the moderating role played by directors’ and supervisors’ characteristics.The results of the study found that,firstly,taking out directors’ liability insurance will significantly increase the financial leverage of the company,and the results still hold after using the instrumental variables method and replacing the explanatory variables with robustness tests;secondly,the paper introduced the characteristics of directors and supervisors and found that the political affiliation background and financial background of directors and supervisors have a positive moderating effect on directors’ liability insurance and financial leverage,while the age of directors and supervisors has an inverse moderating effect on the relationship between the two.Finally,through heterogeneity analysis,we find that state-owned enterprises and enterprises employing "Big Four" auditors suppress the positive relationship between directors’ liability insurance and financial leverage,and the positive effect of directors’ liability insurance on financial leverage is more pronounced in the eastern region than in other regions.The main contributions of this paper are as follows: First,this paper enriches the research on the impact of directors’ and officers’ liability insurance on corporate governance.This paper examines how directors’ liability insurance acts on corporate governance from the perspective of corporate financial leverage,which makes up for the shortcomings of previous studies on directors’ liability insurance.Second,we investigate whether the relationship between directors’ and officers’ liability insurance and financial leverage is moderated by introducing the characteristics of directors and supervisors,and subdividing the characteristics of directors and supervisors into demographic characteristics and background characteristics to verify them respectively.In addition,this paper also investigates the effect of heterogeneity of firms on the relationship between directors’ and officers’ liability insurance and financial leverage.The paper examines three heterogeneous characteristics: whether the listed firm is a state-owned enterprise,whether the listed firm employs a "Big Four" auditor,and the region of the listed firm.