Directors’ And Officers’ Liability Insurance And Corporate Financial Risk-Based On The Perspective Of Agency Cost

The directors’ and officers’ liability insurance(Hereinafter referred to as D&O insurance)is a special liability insurance provided for directors,supervisors and senior executives who make mistakes due to negligence or misconduct in the performance of their duties,so that when they are held accountable,within the scope of legal protection,the insurance company will pay the relevant expenses and reduce their personal liability risks.Many studies believe that D&O insurance can play the role of external governance mechanism,improving corporate governance structure,and improving corporate governance level.How to effectively improve corporate governance has always been the focus of scholars and enterprises,and in recent years,the frequent financial problems of some listed companies have occurred serious impact on the market,making D&O insurance increasingly to be the focus of attention in the relevant industry,prompting the purchase rate of D&O insurance to continue to rise significantly.Therefore,In-depth study of the role of D&O insurance in controlling corporate financial risks is of urgent practical significance for improving corporate governance and optimizing the market environment.In addition,agency costs have also attracted much attention in corporate governance,and how to effectively reduce agency costs is also an important part of corporate governance.Through appropriate theoretical analysis,this paper explores the relationship between D&O insurance,agency cost and financial risk,puts forward corresponding research hypotheses,and repeatedly argues them,so as to provide reference for improving the corporate governance system and promoting the high-quality development of enterprises.This paper selects the data of China’s A-share listed companies from 2010 to 2021 as the research object,and uses multivariate linear regression model to conduct regression containing the dummy variables,which preliminarily tests the correlation between D&O insurance and corporate financial risk,and uses the stepwise regression method to test the mediating effect of agency cost,and uses the Sobel test to further confirm.To avoid the impact of endogeneity problem,this paper also adopts Time-varying Differences-in-Differences(DID)method,Differences-in-Differences and Propensity Score Matching(PSM-DID)method to test the influence relationship between explanatory variables,explained variables and mediating variables respectively,so as to ensure the reliability of the conclusions.And in the robustness test,the method of replacing the mediating variable and the variable lag for one period are used to test the conclusion again with the above three methods.Finally,in further research,the heterogeneity of enterprises with different property rights is analyzed,and the moderating effect of internal control quality is explored.The empirical results show that whether it is multivariate linear regression method,Time-varying DID method or PSM-DID method,there is a significant negative correlation between D&O insurance and corporate financial risk,and the conclusion is reliable,that is,D&O insurance can suppress corporate financial risk.In addition,through the stepwise regression test,D&O insurance can significantly reduce the agency cost of enterprises,and the agency cost plays a partial intermediary role in the negative relationship between D&O insurance and corporate financial risk.In the robustness test,the test results still support the above conclusion after the mediating variable is replaced and the variable lags for one period.In further research,on the one hand,through heterogeneity analysis,it is concluded that compared with state-owned enterprises,the impact of D&O insurance purchased by non-state-owned enterprises on financial risks and the intermediary effect of agency costs are more prominent;on the other hand,the study confirms that the quality of internal control has a moderating effect on the relationship between the influence of D&O insurance and the financial risk of enterprises.Based on the empirical conclusions,this paper puts forward the following policy suggestions: enhance the awareness of enterprise insurance purchase,formulate and improve the relevant laws and regulations,improve the design of D&O insurance-related products,and improve the internal and external governance system of enterprises.