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Directors’ and officers’ liability insurance and accounting conservatism: empirical evidence from China

Managerial auditing journal, 2022-10, Vol.37 (8), p.1091-1112 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited. ;ISSN: 0268-6902 ;EISSN: 1758-7735 ;DOI: 10.1108/MAJ-10-2021-3353

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  • Title:
    Directors’ and officers’ liability insurance and accounting conservatism: empirical evidence from China
  • Author: Jia, Wanjiao ; Bi, Shuoshuo ; Du, Yingjie
  • Subjects: Accounting ; Administrative expenses ; Civil law ; Class action lawsuits ; Corporate governance ; Directors ; Directors & officers insurance ; Earnings management ; Financial reporting ; Hypotheses ; Insurance coverage ; Investments ; Liability insurance ; Social responsibility ; Stock exchanges ; Supervision
  • Is Part Of: Managerial auditing journal, 2022-10, Vol.37 (8), p.1091-1112
  • Description: Purpose This study analyses Chinese data to revisit the relationship between directors’ and officers’ (D&O) insurance and accounting conservatism, aiming to investigate the impact of investors’ legal protection on the function of D&O insurance. Design/methodology/approach The study sample included all A-share firms listed on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2019. Multiple regression was used to investigate the association between D&O insurance and accounting conservatism. The Heckman two-stage model and the propensity score matching method were used to check the robustness of the main results. Findings D&O insured companies exhibited greater accounting conservatism. The higher the indemnity limit, the more conservative a firm’s earnings reporting. The positive correlation was stronger when investor protection was relatively weak. The impact of D&O insurance on accounting conservatism was stronger for companies with weaker internal or external supervision mechanisms. Originality/value The study findings show that D&O insurance plays a positive role in the governance of listed companies when investors’ legal protection is weak, which supports the effective supervision hypothesis of D&O insurance.
  • Publisher: Bradford: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 0268-6902
    EISSN: 1758-7735
    DOI: 10.1108/MAJ-10-2021-3353
  • Source: ProQuest Central
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