Do Lead Independent Directors Serving on the Audit Committee Affect Financial Reporting Quality?
48 Pages Posted: 9 Dec 2018 Last revised: 14 Mar 2019
Date Written: February 1, 2019
This paper examines the effect of the lead independent directors who serve on audit committees on financial reporting quality and external audit firm interactions. Lead independent director is a position on companies’ boards of directors that encompasses several responsibilities, including facilitating communication between independent directors and CEOs. When lead independent directors are also audit committee members, they create direct connections between audit committees, external audit firms, and companies’ CEOs. We find that companies with lead independent directors serving on the audit committee have higher financial reporting quality, more efficient audits, and higher earnings quality, suggesting that lead independent directors on audit committees serve a governance role that improves financial reporting quality, audit quality, and earnings quality. We find the effect whether or not the lead independent director serves as the audit committee head. Our inferences are unchanged through several robustness tests.
Keywords: lead independent director, audit committee, financial reporting quality
JEL Classification: G30, M41, M42
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