Does Directors and Officers Liability Insurance Exacerbate Management Short-Termism?

Abstract

This paper utilizes data from publicly listed companies spanning the years 2008 to 2022 to examine the influence and underlying mechanisms of Directors and Officers Liability Insurance (D&O insurance) on management short-termism. The analysis reveals that the acquisition of D&O insurance exacerbates the level of short-termism among corporate executives. This result withstands robustness tests employing various fixed effects, additional control variables, and sub-samples. The further mechanism analysis has discovered that the purchasement of D&O insurance exacerbates the management short-termism by alleviating corporate financing limitations, resulting in enormous influence among enterprises in large scales and companies that are not supervised by the big four accounting organizations.The findings of this research contribute valuable considerations for listed companies contemplating the acquisition of D&O insurance, offering meaningful insights for both corporate entities and regulatory authorities.