Under the shield: How directors’ and officers’ liability insurance affects corporate greenwashing

Abstract

The dual-edged nature of Directors’ and Officers’ liability insurance (D&O insurance) draws our attention to exploring how it influences corporate greenwashing by shaping executive behavior. Using data from Chinese listed companies, our results demonstrate that D&O insurance significantly induces corporate greenwashing behavior, with this effect notably mitigated when the insurance announcement emphasizes the company’s interests or includes exemption clauses. We identify that heightened executive moral hazard is the key channel through which this effect operates. The background of executives further distorts the effect of D&O insurance: it is prominent among executive teams with dispersed power, lack of academic and political backgrounds. Further research offers regulators insights on curbing the negative impacts of D&O insurance by highlighting the importance of strengthened regulatory warnings and supervision intensity.