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Directors' and officers' liability insurance, environmental regulation and firms' envi ronmental responsibility

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  • Zhang, Xuejiao
  • Huang, Shoufeng
  • Li, Wanfu
  • Wang, Yu

Abstract

This study examines the relationship among directors' and officers' liability insurance (D&O Insurance), environmental regulation, and firms' environmental responsibility-taking. Using the data on firms' green innovation achievement and environmental protection investment from China, where the information of D&O Insurance purchases was disclosed, we find robust evidence that insured firms significantly promote firms' environmental responsibility-taking, evident in more green innovation achievement and environmental protection investment. This positive association is more pronounced for firms exposed to stronger environmental regulation. In addition, we document that the moderating effect of environmental regulation is stronger for SOEs, firms with better corporate governance, operating in heavy-polluting industries, and exposed to a stronger institutional environment. Further mechanism analysis shows that public supervision is the underlying channel through which D&O Insurance affects firms' environmental responsibility. Overall, our findings imply that D&O Insurance, one of the important corporate governance mechanisms, motivates directors and officers to actively practice firms' environmental responsibility, and environmental regulation exerts a positive influence over this governance effect.

Suggested Citation

  • Zhang, Xuejiao & Huang, Shoufeng & Li, Wanfu & Wang, Yu, 2023. "Directors' and officers' liability insurance, environmental regulation and firms' envi ronmental responsibility," Ecological Economics, Elsevier, vol. 208(C).
    • Handle: RePEc:eee:ecolec:v:208:y:2023:i:c:s0921800923000599
    DOI: 10.1016/j.ecolecon.2023.107796
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