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How does directors' and officers' liability insurance affect green innovation? Evidence from China

Author

Listed:
  • Han, Yuling
  • Boubaker, Sabri
  • Li, Wanfu
  • Wang, Yu

Abstract

This paper examines the relationship between directors' and officers' liability insurance (D&O insurance) and firms' green innovation. Using a large dataset on firms' green innovation achievements of Chinese listed firms over 2002–2019, we show that firms with D&O insurance significantly boost their green innovation performance, particularly those facing higher litigation risks, without political connections, and exhibiting corporate governance. Additionally, we find that the green innovation of insured firms significantly bolsters firm value, indicating that D&O insurance helps achieve a win-win situation between shareholder value and environmental sustainability. The mechanism analysis shows that the supervision effect of D&O insurers in mitigating managerial self-interest behavior is the underlying channel through which D&O Insurance affects firms’ green innovation. Overall, our findings suggest that D&O insurance encourages firms' directors and officers to actively pursue green innovation, thereby positively impacting firm value.

Suggested Citation

  • Han, Yuling & Boubaker, Sabri & Li, Wanfu & Wang, Yu, 2024. "How does directors' and officers' liability insurance affect green innovation? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:reveco:v:94:y:2024:i:c:s1059056024004118
    DOI: 10.1016/j.iref.2024.103419
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    More about this item

    Keywords

    Green innovation; Environmental performance; D&O insurance; Risk-taking;
    All these keywords.

    JEL classification:

    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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