Author:
Li Chao,Huo Mengjun,Liu Renhuai
Abstract
Purpose
The purpose of this paper is to empirically analyze the impact of directors’ and officers’ (D&O) liability insurance on enterprise strategic change. It also explores the mediating role of litigation risk, the moderating roles of enterprise science and technology level and precipitation organizational slack between them. In addition, it examines the joint moderating roles of the top management team (TMT) external social network and enterprise science and technology level, and enterprise scale and precipitation organizational slack.
Design/methodology/approach
Using the unbalanced panel data of A-share listed companies in the Shanghai and Shenzhen stock exchanges of China from 2002 to 2020 as the research sample, this paper uses the ordinary least square method and fixed-effect model to study the relationship between D&O liability insurance and enterprise strategic change. The study also focuses on the mediating mechanism and moderating mechanisms between them.
Findings
The authors find that D&O liability insurance has an “incentive effect,” which can significantly promote enterprise strategic change. Litigation risk plays a partial mediating role between D&O liability insurance and enterprise strategic change. Enterprise science and technology level and precipitation organizational slack negatively moderate the relationship between D&O liability insurance and enterprise strategic change. TMT external social network and enterprise science and technology level, and enterprise-scale and precipitation organizational slack have joint moderating effects on the relationship between D&O liability insurance and enterprise strategic change.
Originality/value
This paper confirms the “incentive effect hypothesis” of the impact of D&O liability insurance on enterprise strategic change, which not only broadens the research perspective of enterprise strategic management but also further expands the research scope of D&O liability insurance. Besides, this paper thoroughly explores the influencing mechanisms between D&O liability insurance and enterprise strategic change, providing incremental contributions to the research literature in the field of enterprise risk management and corporate governance. The findings have practical guiding significance for expanding the coverage of D&O liability insurance, promoting the implementation of strategic changes and improving the level of corporate governance of Chinese enterprises.
Reference86 articles.
1. Boubakri, N., Ghalleb, N. and Boyer, M.M. (2008), “Managerial opportunism in accounting choice: evidence from directors’ and officers’ liability insurance purchases”, SSRN, available at: https://ssrn.com/abstract=1109254 or http://dx.doi.org/10.2139/ssrn.1109254.
2. Is corporate governance risk valued? Evidence from directors’ and officers’ insurance;Journal of Corporate Finance,2012
3. D&O insurance and IPO performance: what can we learn from insurers?;Journal of Financial Intermediation,2014
4. Accounting and litigation risk: evidence from directors’ and officers’ insurance pricing;Review of Accounting Studies,2013
5. The price of change: the role of CEO compensation in strategic variation and deviation from industry strategy norms;Journal of Management,2000