How Does Directors' and Officers' Liability Insurance Affect Green Innovation? Evidence from China

Yuling Han, Sabri Boubaker (), Wanfu Li and Yu Wang
Additional contact information
Yuling Han: Fuzhou University [Fuzhou]
Sabri Boubaker: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Wanfu Li: NUFE - Nanjing University of Finance and Economics
Yu Wang: DUFES - Dongbei University of Finance and Economics, Dalian

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Abstract: This paper examines the relationship between directors' and officers' liability insurance (D&O insurance) and firms' green innovation. Using a large dataset on firms' green innovation achievements of Chinese listed firms over 2002−2019, we show that firms with D&O insurance significantly boost their green innovation performance, particularly those facing higher litigation risks, without political connections, and exhibiting corporate governance. Additionally, we find that the green innovation of insured firms significantly bolsters firm value, indicating that D&O insurance helps achieve a win-win situation between shareholder value and environmental sustainability. The mechanism analysis shows that the supervision effect of D&O insurers in mitigating managerial self-interest behavior is the underlying channel through which D&O Insurance affects firms' green innovation. Overall, our findings suggest that D&O insurance encourages firms' directors and officers to actively pursue green innovation, thereby positively impacting firm value.

Date: 2024
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Published in International Review of Economics and Finance, 2024, 94, ⟨10.1016/j.iref.2024.103419⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04889064

DOI: 10.1016/j.iref.2024.103419

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