Governing innovation: The role of D&O insurance in curbing R&D opportunism

This study investigates the impact of Directors and Officers (D&O) liability insurance on Research and Development (R&D) manipulation among Chinese listed companies. Using a sample of 27,569 firm-year observations from 2010 to 2022, we find that D&O insurance significantly reduces R&D manipulation, especially in non-state-owned firms, under strong external supervision, and during the growth and maturity stages. Further analysis reveals a talent attraction mechanism: D&O coverage increases the proportion of executives with overseas experience, which helps curb opportunistic behavior. We also show that D&O insurance weakens the negative impact of R&D manipulation on future innovation. These findings highlight the governance and strategic value of D&O insurance. • D&O insurance significantly reduces R&D manipulation in Chinese listed companies • Governance effects are stronger in non-SOEs and under strong external supervision • D&O coverage attracts overseas-experienced executives who curb opportunistic behavior • Insurance mitigates the negative impact of R&D manipulation on innovation performance • Results support governance enhancement over the moral hazard perspective of D&O insurance