Does directors’ & officers’ liability insurance impact on internal wage disparity?

Providing decent jobs, eradicating poverty and reducing inequality fall under the 17 Sustainable Development Goals of the United Nations. We investigate the impact of Directors’ and Officers’ liability insurance (D&O liability insurance) on internal wage disparity among Chinese listed firms from 2007 to 2022. Our findings reveal that D&O liability insurance is positively correlated with the wage disparity between executives and ordinary employees. This association remains significant after the robustness and endogeneity tests. Furthermore, executive quality, agency issues, subsidy-bolstered performance, reduced scrutiny, and constraint and compensation committees appear to be plausible underlying mechanisms. Finally, our results indicate that the positive association between D&O liability insurance and internal wage disparity is more pronounced in non-state-owned enterprises, firms facing higher market competition, and labour-intensive enterprises. This study sheds new light on the real effects of D&O liability insurance.