Abstract: Directors' and officers' liability insurance(D&O insurance) as an important hedging tools for corporate governance can improve corporate performance, however may lead to moral hazard which impairs firm values at the same time. China's special institutional environment may lead to the listed companies in China for the purchase motivation and economic consequences of liability insurance and the western developed countries have significant differences.Whether the D&O insurance which participate in corporate governance can produce positive economic consequences, and significantly enhance the value of enterprises, but also to be tested by empirical evidence.In order to further explore the mechanism influence of D&O insurance on corporate value, the data of listed company in Shanghai and Shenzhen stock market from 2007 to 2015 are analyzed.The variables of the decision making of D&O insurance may also affect the value of the company, ignoring the endogenous problem will lead to the error of the estimation result. After controlling sample self-selection bias,the propensity score matching method is used to study the influence of the D&O insurance purchase decision on the value of the company. Whether it is financial or accounting performance to measure the value of the company, Empirical evidence indicates that purchasing D&O insurancepolicy can significantly improve corporate value.The research results reveal the comprehensive governance effect of D&O insurance, and provide the empirical evidence of the impact of D&O insurance on corporate value in the transitional economy.

Key words: D&O insurance, corporate value, corporate governance, propensity score matching