The Effects Of Directors’ And Officers’ Insurance On Forecasting Default

Director and senior management liability insurance is gradually developing,and its governance role is still controversial,and there is no literature to study its impact on default risk.As a risk compensation mechanism,director and senior management liability insurance may produce an "incentive effect" to improve the management level of the enterprise,thereby increasing the market value of the enterprise and reducing the risk of default.However,under the influence of the "incentive effect",managers may also increase the risk tolerance for the sound development of the enterprise,thereby increasing the risk of default.At the same time,directors and senior management liability insurance may create conditions for managers to self-interest in speculation,produce a "speculative effect" and increase the risk of corporate default.From a theoretical analysis,the influence of directors and senior management liability insurance on breach of contract is not clear,and the breach of appointment is related to the development of the enterprise,so this article explores the influence and mechanism of directors and senior management liability insurance on the risk of default.Based on the panel data of 2798 listed companies across the country from 2007 to 2019,this paper establishes a two-way fixed-effect regression model to analyze the impact of director and executive liability insurance on default risk,and further studies the impact mechanism on the basis of regression.In addition,it studies the heterogeneity of the influence of directors’and senior management’s liability insurance on default risks under different property rights and whether they are listed overseas.The article carried out a robustness analysis to prove that the results are robust.The specific conclusions of the study are as follows:The distance to default of the insurance companies has been significantly shortened by 1.465,and the risk of default has increased by 1.4%.Further research found that the increase in the risk of default is due to the increase in the level of debt.However,the number of violations of insurance companies has decreased,the possibility of being labeled "ST" has decreased,and the market value and sustainable growth rate have both increased.Therefore,it shows that purchasing director and senior management liability insurance will increase liabilities and increase the company’s default risk,but the company’s operating conditions have not deteriorated,which proves that the increase in default risk is based on "incentive effects." In terms of heterogeneity,non-state-owned enterprises that purchase insurance have reduced the default distance by 2.269,while state-owned enterprises have shortened it by 0.730,which means that insurance has a greater impact on non-stateowned enterprises.At the same time,after purchasing insurance,the default distance of only domestic listed companies has been shortened by 2.269,while the default distance of domestic and overseas listed companies has not changed significantly,which means that insurance has a greater impact on domestic listed companies.