Effects of Directors and Officers Liability Insurance on Board Voting Behavior : Evidence from Chinese Listed Companies

Directors and officers liability insurance (D&O insurance) has gradually emerged as a vital component of external governance mechanism, allowing the appropriate transfer of decision-making risks to insurance companies. While D&O insurance can serve as an incentive for directors to actively fulfill their responsibilities, it also introduces the possibility of reduced prudence and diligence in their decision-making processes. This study investigated the corporate governance effects and mechanisms of D&O insurance from the perspective of board dissenting behavior. The findings indicated the following: (1) companies that purchase D&O insurance exhibit a significantly reduced probability of board dissenting, supporting the moral hazard hypothesis; (2) the moral hazard effect of the insurance is mitigated by external supervision in companies operating in regions with higher insurance market levels and greater insurance company ownership; (3) D&O insurance inhibits the positive effects of board dissenting on corporate performance. This study expanded the understanding of the factors influencing board dissenting from the perspective of external governance mechanisms, providing empirical evidence from a behavioral standpoint for the corporate governance effects of D&O insurance