Peer Effects in Directors’ and Officers’ Liability Insurance: Evidence from China

Abstract

This study finds the purchase of liability insurance for a firm's directors and officers (D&Os) is positively influenced by whether its peer firm purchases such insurance. Firms are considered to be peers if their executives are university alumni. Despite the fact that China has the second largest insurance industry in the world, D&O insurance coverage in Chinese listed firms is relatively low. Our study hence suggests an important new determinant of D&O insurance purchases in China (i.e., executive social ties).