Directors’ and officers’ liability insurance and accounting conservatism: empirical evidence from China
ISSN: 0268-6902
Article publication date: 16 August 2022
Issue publication date: 12 October 2022
Abstract
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.
Keywords
Acknowledgements
The author Wanjiao Jia acknowledges the financial support from the Shanghai Planning Project of Philosophy and Social Science (approval number 2019EJB004).
Citation
Jia, W., Bi, S. and Du, Y. (2022), "Directors’ and officers’ liability insurance and accounting conservatism: empirical evidence from China", Managerial Auditing Journal, Vol. 37 No. 8, pp. 1091-1112. https://doi.org/10.1108/MAJ-10-2021-3353
Publisher
:Emerald Publishing Limited
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