Directors’ and officers’ liability insurance and corporate R&D capitalisation: evidence from China

Ting Gao () and Xiaolong Ma ()
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Ting Gao: Huzhou University
Xiaolong Ma: Huzhou University

The Geneva Papers on Risk and Insurance - Issues and Practice, 2025, vol. 50, issue 4, No 4, 792-824

Abstract: Abstract Using a sample of Chinese A-listed companies from 2007 to 2023, we examine the impact of directors’ and officers’ liability insurance (D&O insurance) on corporate accounting choices related to R&D expenditures. Our results indicate that firms with D&O insurance are more likely to capitalise R&D expenditures. Mechanism analysis suggests that managers’ risk appetite serves as a key channel through which D&O insurance promotes R&D capitalisation. Furthermore, the effect is stronger when firms face higher financing and performance pressures, but weaker when internal and external monitoring mechanisms are more effective. Finally, we find that increased R&D capitalisation due to D&O insurance is associated with lower patent outputs, but has no significant impact on non-patent outputs. These findings highlight the role of D&O insurance on R&D accounting choices and contribute to the empirical literature on its broader consequences.

Keywords: D&O insurance; R&D capitalisation; Accounting choice: risk transfer (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41288-025-00353-4

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