Far-sighted through mitigating risk: Directors and officers liability insurance and corporate ESG performance

Runze Yang, Junwei Wu, Cunyi Yang and Khaldoon Albitar

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: Based on data from China A-share listed companies over the period 2011 to 2021, this paper explores the role of Directors & Officers Liability Insurance (henceforth referred to as D&O insurance) in enhancing the corporate ESG performance. Findings suggest that the procurement of D&O insurance effectively enhances corporate ESG performance, thereby improving societal appraisal of the corporation. Moreover, through employing mediating effect analysis, we find that D&O insurance not only mitigates corporate short-termism but also stimulates governance initiatives, and consequently elevates corporate ESG performance. Additionally, the positive impact of D&O insurance on a company's ESG performance demonstrates significant heterogeneity across different corporate ownership structures and levels of regional marketization. This paper presents compelling evidence supporting the promotion of D&O insurance alongside the progress of ESG frameworks in China. This dual approach significantly contributes to fostering sustainable development within the real economy.

Keywords: Directors & officers liability insurance; Corporate ESG performance; Corporate governance; Sustainable development (search for similar items in EconPapers)
JEL-codes: G22 G34 Q56 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006513

DOI: 10.1016/j.irfa.2024.103719

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