Lead Independent Director: Impact on Firm Performance and Risk Taking

• In Event: Corporate Governance and Organizational Issues in Financial Accounting

Abstract

This paper examines whether the presence of a lead independent director affects firm performance and risk taking. Using a sample of Fortune 1000 companies in the year 2013, we find that the effect of lead independent director on firm performance hinges on CEO –Chair duality. That is, for companies with CEO-Chair duality, the existence of a lead independent director is positively associated with improved firm performance as measured by Tobin’s Q. In contrast, we do not find a similar association for companies separating the positions of CEO and board chair. In addition, we find that the existence of a lead independent director decreases the risk taking of a company. These results suggest that the existence of a lead independent director is helpful in improving a company’s corporate governance.

Authors

• Nandini Chandar, Rider University

• Xiaochuan Zheng, Bryant University