Why Protection Leads to Caution: Unpacking the Impact of Directors’ and Officers’ Liability Insurance and Government Intervention on Green Innovation

While prior studies suggest that Directors’ and Officers’ (D&O) liability insurance increases green innovation, it remains unclear how firms allocate this increased effort across different innovation approaches. To address this gap, this study examines whether firms emphasize exploitative or exploratory green innovation when protected by D&O insurance. Using a sample of Chinese listed companies from 2002 to 2023 and a two-way fixed-effects model, our results show that D&O insurance encourages firms to place a disproportionate emphasis on exploitative over exploratory green innovation. Moreover, firms with partial D&O insurance inclusion have a stronger preference for exploitative green innovation than those with full inclusion. We also find that government environmental regulation strengthens the relative emphasis on exploitative green innovation over exploratory green innovation, while environmental guidance weakens this tendency.