Abstract
Using a sample of listed companies in China from 2009 to 2014, this paper investigates relation between litigation risk and the directors’ and officers’ liability insurance (D&O insurance). The research results show that the higher the risk of litigation, the stronger motivation of the company to buy the D&O insurance, and the judicial transparency has positive moderating effect on the above relationship. It is found that the demand of D&O is influenced by the previous company’s litigation risk and the continuous purchase of the D&O insurance could be promoted by the company's litigation. Our study enriched the D&O insurance demand motive theory, the research conclusion for the D&O insurance in the development of our country and popularity to provide policy and suggestions for reference.
Highlights
In the developed capital market, the operation and management of the enterprises being increasingly complex make the board of directors gradually become the core of the company’s daily management, and it increases the operational risk of the directors and officers
This paper empirically studies the deep influence it has on the relationship between litigation risk and D&O insurance from the Angle of judicial transparency, which enriches the research theory and contents of the “law and finance”. 3) D&O insurance has been quite popular in Europe and the United States and other western countries, becoming the important tool of enterprise to manage risk
Returning to descriptive statistical results of the sample data such as Table 2, the average value of D&O insurance requirements is 0.0896, which shows that 8.96% of the listed companies in the sample have bought D&O insurances liability insurance and we can know that the rate of purchasing in our country is relatively lower while it is 95% in USA and 75% in Canada (Towers-Watson, 2014), showing that the level of D&O insurance purchasing rate is still at a lower stage in china
Summary
In the developed capital market, the operation and management of the enterprises being increasingly complex make the board of directors gradually become the core of the company’s daily management, and it increases the operational risk of the directors and officers. Based on the different judicial transparency level and from the Angle of the demand of D&O insurance, this paper combined litigation risk with corporate governance and studied the mechanism of action of litigation risk. This paper empirically studies the deep influence it has on the relationship between litigation risk and D&O insurance from the Angle of judicial transparency, which enriches the research theory and contents of the “law and finance”. 3) D&O insurance has been quite popular in Europe and the United States and other western countries, becoming the important tool of enterprise to manage risk Compared with these countries, the D&O insurance has been introduced into the capital market in China for more than ten years, enterprises’ enthusiasm is not high and attention degree is not enough.
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