Controlling-minority shareholder incentive conflicts and directors' and officers' liability insurance: Evidence from China
This paper examines the demand for directors' and officers' liability insurance (D&O insurance) by Chinese listed companies where controlling-minority shareholder incentive conflicts are acute due to the concentrated and split ownership structure. We hypothesize and find evidence that the incidence of seeking D&O insurance is positively related to the extent of controlling-minority shareholder incentive conflicts - a finding not previously documented in the literature. Using an event study, we find that the announcements of D&O insurance decisions in firms that engage in earnings management, and/or are controlled by a local government (such firms tend to have stronger incentives to tunnel), seem to have a negative wealth effect. In addition, the incidence of the D&O insurance decision is positively related to the proportion of independent directors and several litigation risk proxies. Therefore, the breakthrough in corporate governance and judicial reforms has created non-negligible perceived securities litigation risks in China.
Year of publication: |
2008
|
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Authors: | Zou, Hong ; Wong, Sonia ; Shum, Clement ; Xiong, Jun ; Yan, Jun |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 32.2008, 12, p. 2636-2645
|
Publisher: |
Elsevier |
Keywords: | D&O insurance Private securities litigation Expropriation Tunneling China |
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