Navigating Risk in a Digital World: Online Search and D&O Insurance Acquisitions

Abstract

The digital age has made online search activities crucial for corporate decisions by reducing information asymmetry between firms and stakeholders. Leveraging data from Chinese listed firms, we find that, except for firms with a history of poor past records, there is a cascade effect of online search, first leading to a reduction in information asymmetry and a lowering of firm risk, then a decrease in Directors’ and Officers’ liability insurance (D&O insurance) purchases, and ultimately bolstering firm value. Despite being derived from the Chinese market, which has recently seen a surge in D&O insurance adoption rates, these findings are relevant to developed countries like the US with stable, high adoption rates. Our results emphasize the importance of understanding the interplay between online search, information asymmetry, and corporate risk, providing valuable insights for firms, investors, and policymakers worldwide.

Keywords: online search; information asymmetry; D&O insurance; corporate governance; corporate risk; firm value; digital transformation; emerging markets; risk management; investor attention

JEL Classification: G22, G30, G32