Directors’ and officers’ liability insurance and corporate cash holdings: From principal–principal perspective
研究中国上市公司董事高管责任保险如何加剧大股东与小股东的利益冲突，导致公司现金持有量增加且被侵占，市场对此类公司的现金价值给予折价。
Abstract This study examines the effect of directors’ and officers’ liability insurance (D&O insurance) on corporate cash holdings in China. We propose a collusion theory in which D&O insurance can exacerbate the conflicts of interest between controlling and minority shareholders by shielding directors and officers from shareholder litigation in emerging countries. Consistent with our expectation, we find that insured firms tend to have high cash holdings that are appropriated by both controlling shareholders and directors/officers rather than being invested or paid to shareholders. Moreover, the positive relationship between D&O insurance and cash holdings is more pronounced in firms with high litigation risks, whereas the effect is attenuated in firms with political connections, strong external monitoring mechanisms and strong controlling shareholder power. Compared with uninsured firms, the market discounts the value of cash holdings for insured firms.