On The Demand For D&O Liability Insurance: Evidence From China

D&O Liability Insurance, formally known as directors’ and officers’ liabilityinsurance, protects directors and officers at corporations from the cost of lawsuitslaunched against them by shareholders, employees or creditors. This dissertation,conducts an empirical investigation on purchase decision of Chinese listed companieson the D&O insurance, using a sample of85companies/years gaining the approvalfrom the shareholders meetings to buy D&O insurance during a period of2007-2010,and a match sample. And the findings are:1. The demand of D&O Liability Insurance is insufficient in China.2. Companies with different industrial characters have different interests on thedemand of D&O insurance. The companies which made purchase decisions on theD&O insurance are mainly belongs to manufacturing industry and finance industry,following them are transportation and storage.3.The descriptive statistics and multivariate analysis shows: companies withmore independent directors serving on the board are more likely to purchase D&Oinsurance; Independence of the board represented by Ownership concentration and Zindex strongly reduces the company’s demand on D&O insurance, while the identityof the controlling shareholder also influence the company’s purchase decision, if it isstate-owned, it will prefer to purchase D&O insurance; acquisitions and divestureincreases the company’s demand on D&O insurance; the increasing litigation riskresulting from overseas listing and B share issuing is another determinant accountingfor the Chinese listed companies’ demand on D&O insurance; the size of the companyalso have some bearing, but the influence is not eminent.As a conclusion, the dissertation provides some policy suggestions from diverseperspectives. Institutionally, the procedural system of shareholders’ representative andindependent director system shall be vigorously promoted and rationally optimized.For the regulatory bodies, it is strongly recommended that they enhance the mandate of listed companies’ disclosing liability of the relevant D&O insurance information,from which both the investors of the listed companies and the researchers of D&Oinsurance will all benefit a lot. Besides, we expect the insurers can learn to adapt theirproducts to the home market. At last, the introduction and optimization of the D&Oprotective mechanisms are necessary to all the companies.