Cautious or confident? Directors’ and officers’ liability insurance and enterprise strategic change: a model of mediating effect and joint moderating effects

Abstract

Purpose

The purpose of this paper is to empirically analyze the impact of directors’ and officers’ (D&O) liability insurance on enterprise strategic change. It also explores the mediating role of litigation risk, the moderating roles of enterprise science and technology level and precipitation organizational slack between them. In addition, it examines the joint moderating roles of the top management team (TMT) external social network and enterprise science and technology level, and enterprise scale and precipitation organizational slack.

Design/methodology/approach

Using the unbalanced panel data of A-share listed companies in the Shanghai and Shenzhen stock exchanges of China from 2002 to 2020 as the research sample, this paper uses the ordinary least square method and fixed-effect model to study the relationship between D&O liability insurance and enterprise strategic change. The study also focuses on the mediating mechanism and moderating mechanisms between them.

Findings

The authors find that D&O liability insurance has an “incentive effect,” which can significantly promote enterprise strategic change. Litigation risk plays a partial mediating role between D&O liability insurance and enterprise strategic change. Enterprise science and technology level and precipitation organizational slack negatively moderate the relationship between D&O liability insurance and enterprise strategic change. TMT external social network and enterprise science and technology level, and enterprise-scale and precipitation organizational slack have joint moderating effects on the relationship between D&O liability insurance and enterprise strategic change.

Originality/value

This paper confirms the “incentive effect hypothesis” of the impact of D&O liability insurance on enterprise strategic change, which not only broadens the research perspective of enterprise strategic management but also further expands the research scope of D&O liability insurance. Besides, this paper thoroughly explores the influencing mechanisms between D&O liability insurance and enterprise strategic change, providing incremental contributions to the research literature in the field of enterprise risk management and corporate governance. The findings have practical guiding significance for expanding the coverage of D&O liability insurance, promoting the implementation of strategic changes and improving the level of corporate governance of Chinese enterprises.

Citation

Li, C., Huo, M. and Liu, R. (2024), "Cautious or confident? Directors’ and officers’ liability insurance and enterprise strategic change: a model of mediating effect and joint moderating effects", Chinese Management Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CMS-09-2021-0396