Does Directors’ and Officers’ Liability Insurance improve corporate governance of Chinese listed firms? The moderating role of insider ownership

Man Wang and Lujia Sun

Finance Research Letters, 2023, vol. 51, issue C

Abstract: China has introduced several governance practices to guide the healthy development of the capital market, which have prompted the development of Directors’ and Officers’ liability insurance (D&O insurance). This study finds that purchase of D&O insurance can significantly reduce corporate overinvestment, and insider ownership suppresses the monitoring effect of D&O insurance. Further research finds that the monitoring effect and the moderating effect are more pronounced in companies whose management team has a higher proportion of female members, with financial backgrounds or overseas backgrounds. After discussing endogeneity issues and robustness checks, our conclusions still hold.

Keywords: D&O insurance; Overinvestment; Insider ownership; Monitoring effect; Characteristic and backgrounds of management (search for similar items in EconPapers)
JEL-codes: D25 G22 G32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005384

DOI: 10.1016/j.frl.2022.103361

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