Insuring legitimacy: The role of uncertainty perceptions in shaping corporate insurance demand

Conggang Li, Yijun Liu, Rong Xu and Xingmei Xu

Economic Modelling, 2025, vol. 151, issue C

Abstract: Geopolitical conflicts, economic shifts, and environmental instabilities heighten uncertainties that challenge corporate legitimacy. These uncertainties foster skepticism among stakeholders, prompting firms to adopt risk management strategies. While much research has focused on macro-level uncertainties, less attention has been given to firm-level perceptions and legitimacy-driven responses. Using data from A-share listed firms in China, this study examines how perceived uncertainties influence the demand for directors' and officers' (D&O) liability insurance. We find that this demand arises not only from litigation risks but also from the need for financial protection. External market conditions and internal governance factors, including control quality and political ties, increase the demand for insurance. Additionally, firms adopt alternative risk management strategies such as financialization, ESG engagement, and digital transformation. This study highlights that as uncertainties evolve, firms will increasingly rely on D&O insurance and complementary strategies to safeguard their legitimacy, offering valuable insights for future research and corporate governance practices.

Keywords: Uncertainty perception; Directors' and officers' liability insurance; Insurance demand; Organizational legitimacy; Corporate risk management (search for similar items in EconPapers)
JEL-codes: G22 G32 M48 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:151:y:2025:i:c:s026499932500152x

DOI: 10.1016/j.econmod.2025.107157

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