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lead Independent Directors: Good governance or window dressing?

aW. P. Carey School of Accountancy, Arizona State University, Tempe, AZ 85287, United States
bDivision of Finance, Price College of Business, University of Oklahoma, Norman, OK 73019, United States
cDepartment of Accounting, The College of Business, Florida State University, Tallahassee, FL 32304, United States

Journal of Accounting Literature

ISSN: 0737-4607

Article publication date: 23 July 2019

Issue publication date: 31 December 2019

370

Abstract

We document the emergence of the Lead Independent Director (LID) board role in a sample of U.S. firms from 1999–2015. We find that firms that adopt an LID board role are larger and have more independent boards, higher institutional investor holdings, and an NYSE listing. Firms with greater anticipated benefits from monitoring also adopt an LID role, e.g., firms with dual CEO-Chairman, with more takeover defense mechanisms, and with higher cash holdings. Using an event study methodology, we find that investors respond positively to the adoption of an LID board role. Lastly, using instrumental variables to address endogeneity in the LID board role, we find that firms with an LID are more likely to terminate poorly performing CEOs. Taken as a whole, these results suggest that the LID board role enhances firm value and improves the quality of corporate governance.

Keywords

Citation

Lamoreaux, P.T., Litov, L.P. and Mauler, L.M. (2019), "lead Independent Directors: Good governance or window dressing?", Journal of Accounting Literature, Vol. 43 No. 1, pp. 47-69. https://doi.org/10.1016/j.acclit.2019.06.001

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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