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Directors’ and officers’ liability insurance and corporate misconduct: Evidence from China

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  • Kedi Wang
  • Chen Wu

Abstract

This study examines whether directors’ and officers’ liability insurance (D&O insurance) plays a governance role in the Chinese capital market. We hypothesize and find that D&O insurance restrains corporate misconduct and that this phenomenon is much more significant in state-owned enterprises (SOEs) than in non-state-owned enterprises (non-SOEs). We think purchasing of D&O insurance can import supervisors to mitigate agency costs caused by owner absence. When agency costs are high, SOEs with D&O insurance experience less corporate misconduct. Our study also finds that when the agency problem caused by owner absence is more serious in SOEs, the role of D&O insurance in corporate governance becomes increasingly important.

Suggested Citation

  • Kedi Wang & Chen Wu, 2023. "Directors’ and officers’ liability insurance and corporate misconduct: Evidence from China," Applied Economics, Taylor & Francis Journals, vol. 55(20), pages 2349-2365, April.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:20:p:2349-2365
    DOI: 10.1080/00036846.2023.2186363
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