Directors’ And Officers’ Liability Insurance And Investor Protection

Investor protection is the foundation of long-term healthy development of securities market.It is an important subject of capital market supervision to protect investors’ legitimate rights and interests from infringement.After the implementation of the registration system in 2020,investors are faced with higher investment risks.The reform of the registration system has put forward higher requirements for the protection of investors.Only relying on administrative supervision and civil remedies can not completely solve the problem of investor protection.It is a good auxiliary mechanism to give play to the social management function of directors’ and officers’ liability insurance.Since the introduction of directors’ and officers’ liability insurance into our country in 2002,it has not been greatly developed.In 2018,five independent directors were convicted of joint and several liability in the financial fraud case of Kang Mei pharmaceutical company,which caused a wave of independent directors’ leaving in the capital market.The directors’ and officers’ liability insurance can disperse the risk of directors and executives performing their duties,so it gets more attention from listed companies.As an independent third-party external mechanism,directors’ and officers’ liability insurance not only has the effect of risk avoidance,but also has the effect of corporate governance.There have been many studies on its role in corporate governance.But there is no consensus.Therefore,in the new form of development,we analyse the executive liability insurance plays the role on corporate governance from different angles.It is helpful to provide the theoretical basis for its further development and popularization in China’s capital market.Based on the governance effect of directors’ and executives’ liability insurance,this paper analyzes it with the theory of liability insurance,the theory of signal transmission and the theory of new system,and tests it empirically.Based on the data of a-share listed companies in Shanghai and Shenzhen from 2011 to 2021,this paper empirically analyzes the impact of directors’ and officers’ liability insurance on investor protection and its possible path of action.And the heterogeneity is tested from the macro external environment level and micro enterprise governance level.This paper finds that directors’ and officers’ liability insurance can significantly enhance the level of investor protection.The mechanism test shows that directors’ and officers’ liability insurance can promote investor protection by reducing agency cost and improving the quality of information disclosure.The heterogeneity test found that among the enterprises with higher marketization,lower social trust,higher proportion of independent directors and higher analyst attention,the effect of directors’ and officers’ liability insurance on investor protection is more significant.This paper extends the research on the impact of external mechanism on the investors protection,and enriches the theoretical basis of the implementation and further improvement of directors’ and officers’ liability insurance.