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Care or fear? The link between D&O liability insurance and CSR engagement: Evidence from China

Author

Listed:
  • Huang, Xin
  • Wu, Ji (George)
  • Bai, Hengyu
  • Yu, Hanze
  • Li, Jing

Abstract

We examine the relationship between firms' purchasing of Directors' and Officers' (D&O) liability insurance and corporate social responsibility (CSR) engagement in China from 2009 to 2019. We find that firms with D&O insurance exhibit significantly higher engagement in CSR activities. The main finding remains significant when we employ 2SLS and PSM-DiD approaches to address potential endogeneity concerns. The mechanism tests reveal that the main finding is driven by the reduction of financial constraints facilitated by D&O insurance, although this positive effect can be weakened by the overinvestment restrictions associated with D&O insurance. Finally, the positive effect of purchasing D&O insurance on firms' CSR engagement is more pronounced for firms with high risk-taking behaviours, high levels of digital innovation, non-SOEs, and firms located in highly developed regions.

Suggested Citation

  • Huang, Xin & Wu, Ji (George) & Bai, Hengyu & Yu, Hanze & Li, Jing, 2025. "Care or fear? The link between D&O liability insurance and CSR engagement: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x25001428
    DOI: 10.1016/j.pacfin.2025.102805
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