Care or fear? The link between D&O liability insurance and CSR engagement: Evidence from China

Xin Huang, Wu, Ji (George), Hengyu Bai, Hanze Yu and Jing Li

Pacific-Basin Finance Journal, 2025, vol. 92, issue C

Abstract: We examine the relationship between firms' purchasing of Directors' and Officers' (D&O) liability insurance and corporate social responsibility (CSR) engagement in China from 2009 to 2019. We find that firms with D&O insurance exhibit significantly higher engagement in CSR activities. The main finding remains significant when we employ 2SLS and PSM-DiD approaches to address potential endogeneity concerns. The mechanism tests reveal that the main finding is driven by the reduction of financial constraints facilitated by D&O insurance, although this positive effect can be weakened by the overinvestment restrictions associated with D&O insurance. Finally, the positive effect of purchasing D&O insurance on firms' CSR engagement is more pronounced for firms with high risk-taking behaviours, high levels of digital innovation, non-SOEs, and firms located in highly developed regions.

Keywords: Directors' and officers' liability insurance; Corporate social responsibility engagement; Non-SOEs; China (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x25001428

DOI: 10.1016/j.pacfin.2025.102805

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