Directors' and Officers' Liability Insurance and Related-Party Transactions: Evidence from China

Using the data set of Chinese A-share listed enterprises, this paper discusses the impact of directors' and officers' liability insurance (hereinafter referred to as D&O insurance) on related-party transactions. We empirically find that D&O insurance positively associates with related-party transactions, and this conclusion still holds after robustness tests such as the DID approach, Heckman two-stage model, and propensity score matching. Mechanism analysis shows that D&O insurance promotes the occurrence of related-party transactions by improving the level of enterprise risk-taking. This positive correlation is more significant in enterprises audited by non-Big Four, non-state-owned enterprises, and samples with strong board independence. This paper not only complements the literature on the actual impact of D&O insurance from the perspective of operating activities, but also provides useful reference for regulating the governance of related-party transactions.