"Controlling-minority shareholder incentive conflicts and directors' an" by Hong ZOU, Man Lai, Sonia WONG et al.
 

Document Type

Journal article

Source Publication

Journal of Banking and Finance

Publication Date

2008

Volume

32

Issue

12

First Page

2636

Last Page

2645

Keywords

D&O insurance, Private securities litigation, Expropriation, Tunneling, China

Abstract

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.

DOI

10.1016/j.jbankfin.2008.05.015

Print ISSN

03784266

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

Language

English

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

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Plum Print visual indicator of research metrics
  • Citations
    • Citation Indexes: 116
  • Usage
    • Downloads: 1158
    • Abstract Views: 27
  • Captures
    • Readers: 108
see details