Managerial Ability and Green Innovation: The Moderating Effect of Directors’ and Officers’ Insurance in China

Purpose - This study investigates the relationship between managerial ability, Directors’ and Officers’ (D&O) liability insurance, and corporate green innovation in Chinese listed companies. Specifically, it examines how managerial ability drives green innovation performance and explores the moderating role of D&O insurance. The analysis highlights distinctions between state-owned and non-state-owned enterprises to provide deeper insights into the contextual variations. Design/Methodology/Approach - Using a dataset of Chinese listed companies spanning 2009 to 2022, this study applies a DEA-Tobit model to quantify managerial ability and uses the logarithm of green innovation patent applications as a proxy for green innovation performance. To test the proposed hypotheses, regression analyses are performed, incorporating other control variables. Findings - The findings indicate that managerial ability has a positive impact on green innovation. D&O insurance strengthens this relationship by reducing legal and financial risks, which encourages managers to participate more actively in green innovation initiatives. In state-owned enterprises, the influence of D&O insurance on the relationship between managerial ability and green innovation is particularly pronounced. In contrast, this effect is weaker and statistically insignificant in non-state-owned enterprises, likely due to their limited risk tolerance and lower motivation to pursue long-term innovation strategies. Research Implications - This study underscores the critical role of enhancing managerial ability and utilizing D&O insurance as an effective risk management tool to drive green innovation. It offers valuable insights for policymakers, emphasizing the need to promote the adoption of D&O insurance, especially among non-state-owned enterprises, to create a supportive environment for sustainable development.