Directors' and officers' liability insurance and minority shareholders' participation in corporate governance

Ruigang Zhang, Runze Yang and Hanwen Huo

International Journal of Finance & Economics, 2025, vol. 30, issue 2, 1106-1123

Abstract: This study empirically investigates the influence of directors' and officers' liability insurance (D&O insurance) on minority shareholders' participation in corporate governance. Using a sample from Chinese A‐share listed companies between 2011 and 2018, we find that D&O insurance can significantly decrease the participation of minority shareholders, and this conclusion remains valid after robustness checks. The mechanism analysis demonstrates that D&O insurance plays a positive role in diminishing minority shareholders' participation through the enhancement of firm performance. Further analyses suggest that the negative association between D&O insurance and minority shareholders' participation is more pronounced in firms with weaker corporate governance practices. These findings provide evidence for the supervisory governance role of D&O insurance, suggesting China should consider encouraging listed companies to purchase D&O insurance for the protection of minority shareholders.

Date: 2025
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