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Directors’ and officers’ liability insurance and firm innovation

Author

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  • Wang, Jialong
  • Zhang, Jian
  • Huang, Haoyue
  • Zhang, Fan

Abstract

In this paper, we investigate the impact of directors’ and officers’ insurance (D&O insurance) on firm innovation in China. We find that D&O insurance is significantly positively associated with firm innovation, which indicates that D&O insurance enhances managers’ tolerance for failure. To address endogeneity concerns, we adopt the propensity score matching method and difference-in-differences approach. We find that firms with D&O insurance have a stronger risk bearing capacity. Further analyses show that the impact of D&O insurance on firm innovation is more pronounced in firms with a better legal environment, male executives, and stronger external supervision.

Suggested Citation

  • Wang, Jialong & Zhang, Jian & Huang, Haoyue & Zhang, Fan, 2020. "Directors’ and officers’ liability insurance and firm innovation," Economic Modelling, Elsevier, vol. 89(C), pages 414-426.
    • Handle: RePEc:eee:ecmode:v:89:y:2020:i:c:p:414-426
    DOI: 10.1016/j.econmod.2019.11.011
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    More about this item

    Keywords

    D&O insurance; Firm innovation;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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