Lead Independent Directors: Good Governance or Window Dressing?

59 Pages Posted: 24 Aug 2014 Last revised: 1 Mar 2018

See all articles by Phillip T. Lamoreaux

Phillip T. Lamoreaux

Arizona State University

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Landon M. Mauler

Florida State University - Department of Accounting

Date Written: February 23, 2018

Abstract

We document the emergence of the lead independent director (LID) board role in a sample of U.S. firms in 1999-2015. We find that firms that adopt a 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 a 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 a LID board role. Lastly, using instrumental variables to address endogeneity in the LID board role, we find that firms with a 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: Lead Independent Directors, Independent Directors, Board Structure, CEO-Chairman

JEL Classification: G32, G34

Suggested Citation

Lamoreaux, Phillip T. and Litov, Lubomir P. and Mauler, Landon M., Lead Independent Directors: Good Governance or Window Dressing? (February 23, 2018). Available at SSRN: https://ssrn.com/abstract=2485502 or http://dx.doi.org/10.2139/ssrn.2485502

Phillip T. Lamoreaux (Contact Author)

Arizona State University ( email )

Tempe, AZ 85287
United States

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Landon M. Mauler

Florida State University - Department of Accounting ( email )

Tallahasse, FL 32306
United States

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