THE RELATIONSHIP BETWEEN DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE AND ESG PERFORMANCE OF FTSE4 GOOD BURSA MALAYSIA COMPANIES
DOI:
https://doi.org/10.18623/rvd.v22.n7.3944Keywords:
Directors’ and Officers’ Liability Insurance, ESG, Performance, MalaysiaAbstract
This study will analyze the correlation between Directors and Officers Liability insurance (D&O insurance) and Environmental, Social and Governance (ESG) performance among the listed companies under FTSE4 Good Bursa Malaysia Index. It is aimed at evaluating how D&O insurance promotes sustainability of corporate practices through improving governance systems or, on the contrary, results in moral hazard and opportunistic actions. Through the Ordinary Least Squares (OLS) regression analysis, the study relies on the annual report and ESG ratings on the financial year 2021 to assess how D&O insurance affects the ESG performance. The results show a high positive correlation, which means that the D&O insurance can help to reinforce corporate governance through responsible decision-making and sustainable business strategies. Nevertheless, the research also contains the possibility of risks, since the D&O insurance may create complacency in corporate executives, which may jeopardize the long-term ESG goals. The insight can be added to the existing body of knowledge regarding corporate governance and sustainability since it offers empirical data on the dual impact of D&O insurance in the Malaysian corporate environment. The originality of the study is in the fact that the novel monitoring and opportunistic hypotheses of the insurance are addressed in the framework of ESG, which proves to be highly beneficial in the context of businesses, investors, and policymakers. Knowing the subtle connection between D&O insurance and ESG performance, stakeholders will be able to come up with more constructive governance models that would maximize sustainable benefits and reduce the occurrence of unintended consequences.
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