Can compulsory liability insurance reduce agency costs? Evidence from China

Di Wang, Guangqiang Liu and Linlin Xie

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: This paper discusses the impact mechanism of compulsory liability insurance on agency costs. Studying the companies listed in China’s food manufacturing industries in 2011–2018, we find that compulsory liability insurance significantly reduces the two types of agency costs, namely, alleviating the principal-agent problem and the principal–principal problem. Robustness tests confirm this finding. The reduction of information asymmetry and the improvement of internal control quality are the mechanisms leading to this result. Compulsory food safety liability insurance plays a significant role in reducing agency costs when company ownership is concentrated or when media coverage is high. This paper provides empirical evidence for joint regulation by the public and private sectors, also provides theoretical reference for further optimizing food safety governance mode.

Keywords: Compulsory liability insurance; Food industry; Agency cost; Information asymmetry; China (search for similar items in EconPapers)
JEL-codes: G22 G30 G34 Q18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000922

DOI: 10.1016/j.ribaf.2023.101966

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