Directors' And Officers' Liability Insurance?Media Attention And Corporate Litigation Risk

Recent years,with the continuous development of China's capital market,litigation risk has gradually become one of the important uncertainty factors affecting the survival of companies.According to statistics from Wind database,the number of civil and commercial cases of A-share listed companies has increased significantly,with the amount of lawsuits filed by listed companies reaching 280 billion yuan in 2018 alone,a record high.The huge potential compensation risk will not only destroy the company's stable operating environment,but also cause serious negative impact on the company's reputation.How to reduce and prevent litigation risk has become an urgent problem for companies to solve.Director and Officers' liability insurance(hereinafter referred to as "D&O insurance"),as an external hedging tool to hedge unexpected risks and deal with future uncertainties,has been widely used in western countries.At present,there are two perspectives on the corporate governance effect of D&O insurance in the theoretical circle.One view is that the purchase of D&O insurance increases the supervision of external insurance institutions,reduces the sued cost of directors and officers,and can motivate the manager to act diligently to make positive decisions.However,another viewpoint holds that the "bottom line effect" of the liability insurance will lead to the moral hazard of managers and the increase of opportunistic behaviors.Then,in the relationship between the D&O insurance and litigation risk,does the D&O insurance increase the litigation risk of the company by increasing the opportunistic behavior of senior executives or reduce the litigation risk by enhancing external supervision?At the same time,as an important external governance mechanism,media attention can significantly reduce earnings management behavior and the probability of corporate violation.If D&O insurance cannot play its supervisory role,is there some mechanism,such as media attention,that can play a positive effect between D&O insurance and litigation risk?Taking China's A-share listed companies from 2002 to 2018 as research samples,this paper takes D&O insurance,media attention and corporate litigation risk into the same research framework,empirically examines the impact of D&O insurance on litigation risk and its transmission path,as well as the role played by media attention and analyst attention.According to the coverage of D&O insurance and the classification of litigation risk,further analysis is made on whether D&O insurance have a particularly significant impact on a certain type of litigation risk.The results show that: in general,the purchase of D&O insurance will significantly increase the litigation risk of the company;The analysis of the mechanism of action shows that after the purchase of D&O insurance,the company mainly increases the litigation risk by increasing the earnings management behavior of the management.Secondly,when the company introduces media attention or analyst attention,it will weaken the positive relationship between D&O Insurance and litigation risk.In the further analysis,through the classification of litigation risks,this paper finds that D&O insurance can significantly increase the litigation risks caused by securities false statement disputes,while other types of litigation risks are not significant.Finally,the endogeneity problem was alleviated by means of instrumental variable method and PSM model,and the conclusion was still robust.The contributions of this paper are as follows: Firstly,from the perspective of litigation risk,this paper examines the impact of D&O insurance on litigation risk and its mechanism,supplies the research on the economic consequences caused by the impact of D&O insurance on the individual decision-making behavior of the management.Secondly,by introducing other governance mechanisms,such as media attention or analyst attention,it is found that they play a moderating role between the D&O insurance and litigation risk,providing another way for further stimulating the governance role of the D&O insurance.Thirdly,through further classification of litigation risk,it is found that the D&O insurance significantly increases the litigation risk caused by false statement disputes,which provides empirical evidence for the study of the influencing factors of litigation risk and the key supervision.