Lead Independent Director: Impact on Firm Performance and Financial Misstatements

Abstract

This paper examines whether the presence of a lead independent director improves firm performance and reduces financial misstatements. Using a sample of Fortune 1000 companies in the year 2013, we find that the effect of lead independent directors on firm performance hinges on CEO –Chair duality. 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 CEO and board chair positions. In addition, we do not find an association between the existence of a lead independent director and the likelihood of misstatements. These results suggest that the existence of a lead independent director helps improve a company’s corporate governance.