Lead independent directors and investment efficiency |
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| Institution: | 1. Department of Accounting and Finance, School of Management, Zhejiang University, China;2. Business School, University of Queensland, Australia;1. School of Economics and Management, Beijing University of Posts and Telecommunications, Beijing, China;2. School of Economics, Shandong University, Jinan, China;1. UNSW Business School, University of New South Wales, Sydney, NSW 2052, Australia;2. Monash Business School, Monash University, Melbourne, VIC 3800, Australia;1. SILC Business School, Shanghai University, 20 Chengzhong Road, Jiading District, Shanghai 210899, China;2. Korea University Business School, 145 Anam-Ro, Seongbuk-Gu, Seoul 02841, Republic of Korea;3. School of Economics, Yonsei University, 50 Yonsei-Ro, Seodaemun-Gu, Seoul 03722, Republic of Korea |
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| Abstract: | I show that the presence of a lead independent director on the corporate board is positively associated with investment efficiency. The result is more pronounced for firms with weaker corporate governance standards, less transparent financial disclosure, and greater financial constraints. The lead director presence is negatively associated with overinvestment (underinvestment) for firms with large cash balances and low leverage (high cash flow volatility). Moreover, the lead director investment-related committee membership as well as CEO power matter in this setting. The lead director board role is also positively associated with future firm performance. |
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