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Directors and Officers Liability Insurance and Maturity Mismatch: Evidence from China

We investigate the impact of D&O insurance on the maturity mismatch for listed firms in China. Using a unique manually collected dataset, we conclude that firms with D&O insurance exhibit significant maturity mismatch. Our results remain the same when using alternative methods, including the Heckman regression, the PSM approach, an alternative test of mismatch, and a firm-fixed effect model. In addition, we apply the moral hazard theory to explore the potential internal and external mechanisms which may cause the maturity mismatch. Our results suggest that the D&O insurance weakens the disciplinary effect of shareholder litigation, causing an increase in maturity mismatch. Therefore, it is important to recognize the negative effect of D&O insurance so that policymakers can establish effective supervision mechanisms. Our paper contributes to the existing literature and sheds some extra lights on the issue related to D&O insurance, an issue that has not been paid enough attention in China since its introduction in 2002.