Managerial Incentives,Directors And Officers Liability Insurance And Enterprise Innovation

Innovation breeds New economic growth in China.As the main body of innovation,enterprises should take the initiative to find the stimulation of innovation.At the company level,the result of enterprise innovation is a function of human ability and motivation,especially the ability and motivation of management will have a certain impact on enterprise innovation.However,due to the principal-agent problem,the management pursues its own interests and is risk-averse,and will try to avoid enterprise innovation with high risks,so the management lacks innovation motivation.Under this background,in order to solve the problem of lack of innovation motivation of management,it is necessary to start from two aspects:management incentive and risk avoidance of performance.Among them,the incentive mechanism of management mainly consists of monetary income and equity income,while the risk avoidance of performance risk can be assumed by the liability insurance of directors and executives.Therefore,starting from the decision-maker of enterprise investment research and development--the management,based on the principal-agent theory,management incentive and directors’ liability insurance are incorporated into a unified analytical framework to solve the core question:"Can a company purchase directors’and executives’ liability insurance adjust the influence of management incentive on enterprise innovation?".From this,several aspects of the research:first,to verify whether the management incentive to promote enterprise innovation;Secondly,whether directors’ liability insurance,as an independent variable,has an impact on enterprise innovation;Thirdly,the influence of the introduction of directors’ liability insurance on enterprise innovation under the interaction between directors’ liability insurance and management incentives.Firstly,based on the existing literature and theories,it demonstrates the internal logical relationship among directors’ liability insurance,management incentives and enterprise innovation.Secondly,the data of A-share listed companies from 2007 to 2018 are selected to conduct regression analysis of management incentives,directors’liability insurance and their interaction factors on enterprise innovation.The empirical results show that management incentives promote enterprise innovation--whether measured by the overall incentive level,monetary compensation and equity compensation respectively.Directors’ liability insurance has no significant effect on enterprise innovation.The company’s purchase of directors’ liability insurance significantly enhanced the promotion effect of management incentives on enterprise innovation.Finally,the robustness test was carried out,and the empirical regression was conducted again by changing the explained variables and reducing the sample number,which was the same as the result of the main part,and the reliability was confirmed.To sum up,from the perspective of management,the introduction of directors’liability insurance,which is emerging in China in recent years,further expands the influencing factors of enterprise innovation.The research conclusion shows that,as a kind of icing on the cake governance mechanism,directors’ liability insurance can be introduced under the condition that the management incentive mechanism is perfect.The two functions to promote enterprise innovation.