Balancing act: D&O liability insurance and ESG disclosure in the Chinese corporate landscape

Environmental, social, and governance (ESG) information disclosure refers to a corporation’s voluntary disclosure of information regarding specific practices. This study empirically tests the effects of Directors’ and Officers’ (D&O) liability insurance on corporate ESG disclosure levels in Chinese listed firms. The findings show that compared to firms without D&O liability insurance, firms with coverage exhibit significantly higher levels of ESG disclosure overall and in the individual dimensions. Furthermore, the conclusions hold after a series of robustness tests, suggesting that D&O liability insurance plays an incentive supervisory role. Moreover, the mechanism analysis reveals that D&O liability insurance promotes corporate ESG disclosure by improving a firm’s internal control quality. Further analysis finds that the promotion effects of D&O liability insurance on the level of ESG disclosure are more pronounced in firms that are state-owned, have a higher proportion of institutional shareholding, use ‘BIG4’ auditing, and have higher analyst coverage. This study enriches the literature on the economic consequences of D&O liability insurance and provides practical insights into the promotion of corporate ESG disclosure.