Research On The Effect Of Directors' And Officers' Liability Insurance On Over-investment And Diversification

The directors' and officers' liability insurance originated in the Anglo-American law countries.In the past 80 years,they have gained high popularity and recognition.The initial purpose was to insure the risk of the company's directors,supervisors and senior management from being subjected to investor 's civil lawsuit during the performance of their duties,thereby promoting the management to actively invest in and enhance corporate value.The insurance company suppresses the opportunistic behavior as an outside investor.The insurance company has the obligation and ability to enable investors to obtain legal compensation.However,scholars have studied the effect of governance,and found that the insurance may lead to moral hazard and adverse selection of management.Therefore,there is still no conclusion on the role of governance and external supervision of directors' liability insurance.Based on insurance theory,information asymmetry theory,agent theory and stakeholder theory,the paper selects diversification and over-investment as the representative of corporate investment behavior.The 2002-2016 panel data from A-share of China's listing companies were used as research samples to analyze the governance effects on corporate investment behavior,and then explored the adjustment role of property rights and institutional investors.The results show that: directors' and officers' liability insurance has a deterrent effect on the corporate investment;compared with state-owned companies,directors' and officers' liability insurance can play a more effective role in non-state-owned companies;with the increase in the proportion of institutional investors,the restraining effect of directors' and officers' liability insurance on diversification will be weakened;and for over-investment,institutional investors have no effect.In summary,the directors' and officers' liability insurance in China still need development: the legal responsibilities for management need to be improved;the education for investors' protection should be improved;insurance companies should keep products close to China commercial realities and policy to enhance supervision and governance.