Directors’ and Officers’ Liability Insurance, Innovation Efficiency and Performance of Enterprises

Abstract

In recent years, directors’ and officers’ liability insurance (D&O insurance) has been widely used in developed countries, and as a new governance tool in China, has received more and more attention. To assess whether enterprises that introduce D&O insurance have better innovation performance, this paper, uses the mixed common least square method and the propensity score matching method to empirically test the influence of D&O insurance on the innovation efficiency of enterprises, and how D&O insurance affects the sensitivity between innovation efficiency and enterprise performance. The results show that the purchase of D&O insurance can significantly improve the innovation efficiency of enterprises, which supports the incentive effects of D&O insurance. There is a lag effect between innovation efficiency and market performance. The impact of innovation efficiency on financial performance is not significant, indicating that China's technological innovation is inefficient in the transformation of actual productivity. The purchase of D&O insurance will reduce the sensitivity between the innovation efficiency and the performance of enterprises. It shows that the incentive and supervision effect of D&O insurance coexists with opportunistic behavior. The conclusion of this paper expands the understanding of corporate governance theory in China and has clear practical significance.