Directors' and Officers' Liability Insurance and Corporate Social Responsibility

Cheng, W. Y., Chang, Y., and Chen, K. H. 2022. Directors' and Officers' Liability Insurance and Corporate Social Responsibility. NTU Management Review, 32 (2): 155-212. https://doi.org/10.6226/NTUMR.202208_32(2).0005

Wan-Yin Cheng, Department of Finance, National Changhua University of Education
Yuan Chang, Department of Finance, National Changhua University of Education
Kun-Hsin Chen, Department of Finance, National Changhua University of Education

Abstract

Directors' and Officers' Liability Insurance (DOLI) reduces the risk of litigation for directors and other senior management, and has the merit of increasing willingness to bearing risks, improving retention of talented personnel, and strengthening corporate governance due to external monitoring by the insurers. A corporate that fulfill social responsibilities can strengthen its relationships with stakeholders, enhance corporate reputation, and ensure the long-term sustainability. Prior studies have proved that Corporate Social Responsibility (CSR) can be viewed as a type of insurance in terms of corporate risk mitigation. Both DOLI and CSR can be regarded as firm’s risk management strategy, making DOLI and CSR a positive relationship. However, some other studies point out that management under the protection of DOLI may behave opportunistically and thus put the interest of stakeholders at risk. The relationship between DOLI and CSR turns to negative. In this research, to examine the above two seemingly conflicting viewpoints, we select samples from 1,532 non-financial firms listed on the Taiwan Stock Exchange (TWSE) and Taipei Exchange Market (TPEx) and analyze their data from 2008 to 2018. Our findings indicate that there is a significant and positive association between the DOLI coverage and CSR performance, proving that firms with greater DOLI coverage to protect litigation risk tend to devote greater resource in CSR to pursue sustainability.  


Keywords

directors' and officers' liability insurancecorporate social responsibility


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