AUTHOR=Peng Cheng , Fu Wenting , Zhang Xinyu , Jiang Hui 

TITLE=The impact of subscribing to directors’ and officers’ liability insurance on corporate financialization: Evidence from China

JOURNAL=Frontiers in Psychology

VOLUME=Volume 13 - 2022

YEAR=2022

URL=https://www.frontiersin.org/journals/psychology/articles/10.3389/fpsyg.2022.986135

DOI=10.3389/fpsyg.2022.986135

ISSN=1664-1078

ABSTRACT=As an important corporate governance mechanism, directors' and officers' liability insurance is theoretically associated with corporate financialization because it directly affects management's incentive constraints and risk appetite. However, whether there is a causal relationship in fact has not been sufficiently empirically investigated. Using a sample of Chinese non-financial listed companies in Shanghai and Shenzhen A-shares from 2008 to 2020, this paper empirically analyzes how corporate subscription to directors' and officers' liability (D&O) insurance affects corporate financialization and examines the mediating role played by risk-taking, financing constraints, and audit quality. The study finds that corporate subscription to D&O insurance increases corporate financialization. In terms of the influential mechanism, subscription to D&O insurance promotes financialization by increasing risk-taking, alleviating financing constraints, and improving audit quality. In addition, the results in the heterogeneity analysis suggest that the promotion of financialization by subscribing to D&O insurance is more significant in state-owned enterprises, growth and decline stage enterprises, and non-dual-employment enterprises.