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lead Independent Directors: Good governance or window dressing?

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  • Lamoreaux, Phillip T.
  • Litov, Lubomir P.
  • Mauler, Landon M.

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.

Suggested Citation

  • Lamoreaux, Phillip T. & Litov, Lubomir P. & Mauler, Landon M., 2019. "lead Independent Directors: Good governance or window dressing?," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 47-69.
    • Handle: RePEc:eee:joacli:v:43:y:2019:i:c:p:47-69
    DOI: 10.1016/j.acclit.2019.06.001
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    3. Owusu, Andrews & Kwabi, Frank & Owusu-Mensah, Ruth & Elamer, Ahmed A, 2023. "Lead independent director, managerial risk-taking, and cost of debt: Evidence from UK," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 53(C).
    4. David B. Bryan & Terry W. Mason, 2023. "Lead independent directors and accruals quality," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(3-4), pages 660-679, March.
    5. Rajkovic, Tijana, 2020. "Lead independent directors and investment efficiency," Journal of Corporate Finance, Elsevier, vol. 64(C).
    6. Etienne Redor, 2021. "Do all inside and affiliated directors hold the same value for shareholders?," Post-Print hal-03290640, HAL.

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