D&O Liability Insurance，Salary Substitution and Corporate Performance: A Quasi-natural Experiment Based on the “Executive Salary Regulation”

Abstract

State-owned enterprise salary control is one of the important content of China’s income distribution system. It has a broad and significant influence on the development of state-owned enterprises. As the economic environment changing in different periods, the salary control for the executives of state-owned enterprises has undergone a process from loosening to tightening, but its effect is controversial. On August 29, 2014, the Political Bureau of the Central Committee of the CPC issued the “Executive Salary Regulation”, which set specific regulations on salary and other incentive measures of state-owned enterprise executives. However, this “top-down” and “one-size-fits-all” type of macro regulations cannot meet the differentiated needs of enterprises at the micro level, and it ignores the risk-return matching problem of state-owned enterprise executives. So, it has not achieved the expected results. Therefore, exploring how to adjust and optimize the implementation of macro regulations from the micro level has important theoretical significance and practical value. D&O liability insurance is a kind of non-monetary risk management tool that can reduce the decision-making risk of senior executives and improve their decision-making enthusiasm. This article uses the 2012-2016 listed companies as a research sample to investigate the optimization and adjustment effect of D&O liability insurance on salary control by the DID model from the perspective of risk compensation. The study finds that: The “Executive Salary Regulation” increases the purchase of D&O liability insurance in state-owned enterprises, and this result is more prominent in state-owned enterprises with higher growth. At the same time, D&O liability insurance can significantly improve the performance of state-owned enterprises under the “Executive Salary Regulation”. The positive effect is more pronounced in higher-risk state-owned enterprises. The path research shows that: The positive effect of D&O liability insurance is achieved by increasing the marginal revenue and marginal rate of state-owned enterprises. This result demonstrates the risk protection and auxiliary decision-making functions of D&O liability insurance, and also demonstrates the optimization effect of executive initiative promotion on the efficiency of enterprise production and operation. In theory, the conclusion of this article proves the positive influence of D&O liability insurance in corporate governance and macro policy optimization through the quasi-natural experiment on the “Executive Salary Regulation”. In practice, it emphasizes the importance of risk factors in compensation contract, which provides a reference for China’s salary control and system innovation of state-owned enterprises.