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Promote or inhibit? Director and officer liability insurance and corporate excess leverage

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  • Ma, Huajun
  • Zhu, Tao
  • Wang, Xiaoyi

Abstract

Reducing corporate excess leverage, defined as the deviation of a firm’s actual leverage ratio from its optimal capital structure, is critical for high-quality corporate development. Using 2009–2022 data from Chinese A-share firms, this study finds D&O insurance reduces over-indebtedness through supervisory governance effects, particularly in private/high-growth firms. Mechanism analysis identifies enhanced information transparency as the key channel. Complementary effects with internal/external governance are observed: D&O’s leverage-reducing impact strengthens with higher internal control, intensive analyst coverage, and advanced marketization/legalization. Additionally, D&O insurance lowers corporate bankruptcy risk by curbing excess leverage, offering policy insights for leveraging its governance role in debt management.

Suggested Citation

  • Ma, Huajun & Zhu, Tao & Wang, Xiaoyi, 2026. "Promote or inhibit? Director and officer liability insurance and corporate excess leverage," Finance Research Letters, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finlet:v:102:y:2026:i:c:s1544612326005660
    DOI: 10.1016/j.frl.2026.110037
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