D&O Insurance And Audit Fees

The D&O insurance initially appeared in the mature capital markets in the West,which can effectively reduce the risks that the directors and executives of enterprises may face in the future,and has a high prevalence in developed capitalist countries.The original intention of enterprises to purchase D&O insurance is to provide certain protection for their directors and executives to reduce corporate risks and improve corporate benefits.However,the governance effect of D&O insurance in practical application is not ideal,and there are many disputes.Especially in China,the capital market is relatively imperfect,and there is more uncertainty about the governance effect of D&O insurance.Taking the A-share listed companies in Shanghai and Shenzhen from 2009 to 2021 as a sample,this paper discusses the impact of D&O insurance on audit fees,the intermediary effect of earnings management behavior of enterprises on the relationship between them,and the regulatory effect of ownership concentration on the relationship between them through the collection of D&O insurance,audit fees and other relevant data,using the method of combining normative analysis and empirical analysis.The research finds that listed companies’ purchase of D&O insurance will increase audit fees,and earnings management plays a part of intermediary role in the relationship between them.In addition,the positive correlation between D&O insurance and audit fees is more significant in enterprises with higher equity concentration.This shows that the purchase of D&O insurance by enterprises may transfer the personal responsibility of management,over protect them to a certain extent,induce and intensify moral hazard,increase earnings management behavior of enterprises,intensify agency conflict,and thus increase audit costs.The possible contributions of this paper are as follows: First,starting from the governance effect of D&O insurance,this paper discusses the relationship between the purchase of D&O insurance and corporate audit fees.This not only enriches the research on the influencing factors of audit fees,but also further expands the research scope of D&O insurance;Second,taking earnings management as an intermediary variable to discuss the impact path of D&O insurance on audit costs,providing the most direct evidence for D&O insurance to increase audit costs,which is of great significance for how to reduce the level of earnings management of companies and thus reduce audit costs;Third,further study the impact of ownership concentration on the relationship between D&O insurance and audit fees,and standardize and guide enterprises to purchase D&O insurance from a new perspective.