Document Type

Journal article

Source Publication

Journal of Banking and Finance

Publication Date






First Page


Last Page



D&O insurance, Private securities litigation, Expropriation, Tunneling, 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 risk in China.



Print ISSN


Publisher Statement

2008 Elsevier B.V. All rights reserved.

Access to external full text or publisher's version may require subscription.

Full-text Version

Accepted Author Manuscript

Recommended Citation

Zou, H., Wong S., Shum, C., Xiong, J. & Yan, J. (2008). Controlling-minority shareholder incentive conflicts and directors' and officers' liability insurance: Evidence from China. Journal of Banking And Finance, 32(12), 2636-2645. doi: 10.1016/j.jbankfin.2008.05.015