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1823In recent years, the international market has experienced frequent fluctuations, and the supervision policies of OFDI have become increasingly strict. The complex and ever-changing global economic and trade environment has severely constrained Chinese enterprises’ overseas transactions, slowing down the process of “going global”. With the increasing uncertainty such as trade protectionism, Chinese enterprises are facing more challenges in overseas investment. Thus, overseas risk management has become an important part of opening-up strategy. Directors’ and Officers’ Liability Insurance (D&O insurance) uses the professional risk-control techniques of insurance companies to mitigate overseas risks, and encourages managers to actively participate in high-risk overseas investment projects, which promotes OFDI. Taking China’s A-share listed companies from 2004 to 2018 as the research object, this paper explores the impact of D&O insurance on OFDI, and deeply analyzes how D&O insurance affects OFDI.
This paper has the following findings: (1) D&O insurance increases the establishment and performance of enterprises’ overseas subsidiaries, suggesting that the mechanism by which D&O insurance induces irrational investment behavior and performance decline is not dominant, thereby ruling out the moral hazard hypothesis. (2) Enterprises with D&O insurance are more inclined to establish overseas subsidiaries through cross-border M&As. (3) The “Belt and Road” initiative positively moderates the relationship between D&O insurance and OFDI, which indicates that D&O insurance and the “Belt and Road” initiative promote OFDI from different perspectives. (4) D&O insurance mitigates risk aversion and improves corporate governance, but does not reduce enterprises’ financing constraints, which supports the management incentive and external supervision mechanism proposed in existing literature, but does not support the financing risk-control mechanism.
From the perspective of overseas subsidiaries, this paper explores the relationship between D&O insurance and OFDI, which adds to the empirical findings on the topic. It focuses on the positive and negative effects of D&O insurance, which contributes to our understanding of the impact of D&O insurance on OFDI. It also expands the literature on OFDI from the perspective of corporate insurance.
