Lead Independent Director, Managerial Risk-Taking and Cost of Debt: Evidence from UK
Owusu, A., Kwabi, F., Owusu-Mensah, R. and Elamer, A. A. (2022). “Lead Independent Director, Managerial Risk-Taking and Cost of Debt: Evidence from UK”, Journal of International Accounting, Auditing and Taxation, Forthcoming (Accepted 3 November 2022).
44 Pages Posted: 7 Dec 2022
Date Written: November 3, 2022
We extend the existing literature on how the adoption of a lead independent director is related to corporate outcomes by documenting that the presence of a lead independent director on the board is significantly and negatively related to managerial risk-taking. The result is more pronounced for firms with a non-independent board chair. In a further analysis, we document that decreased managerial risk-taking leads to a reduction in cost of debt for firms with a lead independent director on the board. Overall, our results suggest that the adoption of a lead independent director is an effective governance mechanism when the board chair is not independent, which supports the motivation of the UK corporate governance code.
Keywords: lead independent director; managerial risk-taking; cost of debt
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