Directors’ and Officers’ Liability Insurance and Corporate Innovation: The Mediating Role of Corporate Risk-Taking in Chinese Listed Firms

Background/Introduction: Directors’ and officers’ (D&O) liability insurance is widely believed to shape corporate decision-making, yet how it influences corporate innovation is unclear. One stream of the literature links D&O insurance to innovation, and another links it to corporate risk-taking, but the channel connecting the two has been assumed rather than tested. Objectives: This study asks whether corporate risk-taking mediates the relationship between D&O insurance and corporate innovation in Chinese A-share listed firms, and how much of the total effect that channel carries. Materials and Methods: We estimated a three-equation stepwise mediation model based on a firm-year panel of 24,122 observations covering 5004 firms from 2018 to 2024, using firm and year fixed effects with firm-clustered standard errors. The indirect effect was assessed with a Sobel test and a firm-clustered bootstrap, and seven robustness checks addressed measurement, timing, and selection. Results: D&O insurance is positively associated with both corporate risk-taking and R&D intensity, and risk-taking is positively associated with R&D intensity. Risk-taking carries about 18.5 per cent of the total effect, so mediation is partial and the direct path is the larger route. Conclusion and Implications: The evidence favours the monitoring view of D&O insurance over the moral-hazard view and shows that general risk tolerance is only one of the channels involved. D&O coverage is best treated as a governance instrument with a measurable but partial link to innovation.