The impact of directors’ and officers’ liability insurance on firm’s investment efficiency: evidence from China

Publication Name

Pacific Accounting Review


Purpose: The purpose of this paper is to examine the impact of directors’ and officers’ liability insurance (D&O insurance hereafter) on corporate governance and firm performance, with a specific focus on investment efficiency. Design/methodology/approach: Using a sample of Chinese A-share listed firms from the period 2007 to 2020, this study uses Ordinary Least Squares regressions to investigate the research questions, as well as moderating and mediating effects. Additionally, alternative measures of investment efficiency are used, and the Heckman two-stage model and propensity score matching model are used to demonstrate the consistency of the findings and to mitigate the risk of endogeneity. Findings: The findings of this study suggest that purchasing D&O insurance has a detrimental impact on corporate investment efficiency, particularly in the context of over-investment activities; robust internal governance mechanisms, exemplified by a higher shareholding ratio of the top shareholder and enhanced internal control quality, alleviate this negative effect; and financing constraints act as a mediating factor in the association between D&O insurance and investment efficiency. Originality/value: Corporate investment efficiency is of significant importance for both national macroeconomic growth and micro-enterprise development. Notably, the prevalence of D&O insurance among Chinese firms is progressively increasing, thus exerting a growing influence. This study contributes to the existing literature on D&O insurance and corporate investment efficiency, providing valuable insights into the economic impact of D&O insurance on Chinese firms. The empirical evidence presented herein facilitates future reforms and adjustments.

Open Access Status

This publication is not available as open access

Funding Number


Funding Sponsor

National Natural Science Foundation of China



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