SUMMARY
Despite SOX enhancing the requirements of audit committee (AC) members, AC members are perceived to be inactively involved or lacking timely information about accounting issues. However, when lead independent directors (LIDs) serve on ACs, they bring the ability to ensure timely sharing of and improved awareness of accounting issues among the AC members, the external auditor, and managers, strengthening AC effectiveness. When considering the broad cross-section of companies with LIDs on the AC, we find that they produce more reliable and timely financial information, especially companies with large ACs or whose CEO tenure is short. However, examining subsamples of companies with/without CEO duality, the effect differs for individual companies, suggesting weaker results when there is CEO duality and benefits of having LIDs on other committees. A path analysis suggests that LIDs on the AC lead to a lower likelihood of CEO-forced turnover because of their favorable influence on financial reporting.
Data Availability: All the data used in this paper, including financial statements, annual reports, and regulatory filings, are sourced from publicly available financial databases and regulatory filings.
JEL Classifications: G30; M41; M42.
