Abstract
This paper investigates the effect of directors and officers liability insurance (D&O insurance) on firm investment behaviour. Under the Chinese institutional environment, we analyse the relationship between D&O insurance and firms’ capital expenditure decisions. We find that compared with firms without D&O insurance, firms with D&O insurance will invest more with free cash flow and that their investment efficiency decreases. We get the same findings when we compare the investment behaviour of the same company between a period with D&O insurance and a period without D&O insurance. Our findings imply that improving the effect of D&O insurance on corporate governance should rely on the development of minority shareholder protection under the existing institutional environment.
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* Our paper constitutes part of a National Natural Science Foundation research project entitled “The performance assessment system of state-owned enterprises: Reform and its economic consequences”. It has been supported by the MOE’s Project of Key Research Institutes of Humanities and Social Sciences in Universities (11JJD790008, 14JJD630005) and funded by the Program of Shanghai Municipal Education Commission (2014111143) and Project 211 of Shanghai University of Finance and Economics. We would like to thank the editors and two anonymous reviewers for their helpful comments. We take full responsibility for this article.
1 Corresponding author: Kai Zhu, Research Institute of Accounting and Finance, Shanghai University of Finance and Economics, China; e-mail address: aczhuk@mail.shufe.edu.cn. The same affiliation is shared by the first and third authors.
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Chen, X., Zhu, K. & Li, N. D&O Insurance and Corporate Investment Efficiency *. China Account Financ Rev 17, 7 (2015). https://doi.org/10.7603/s40570-015-0007-9
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DOI: https://doi.org/10.7603/s40570-015-0007-9