Lead Directorship and Firm Performance

Abstract

This paper empirically explores the role of the lead directors in the corporate governance system and strives to empirically examine the association between the lead directorship and firm performance. I measure firm performance by three empirical proxies: Tobin’s Q, returns on assets (ROA) and stock returns. I explore the research question on the relationship between lead directorship and firm performance in both cross-sectional and inter-temporal contexts. The sample consists of S & P 500 firms from 2001 to 2004 that have all the required financial, stock returns, and other relevant information. Overall, the empirical results of both cross-sectional and inter-temporal analyses indicate a positive association between lead directorship and firm performance.

Keywords

• Corporate governance,lead directors,firm performance,Sarbanes oxleyact.

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16. Appendix 1: Descriptive Statistics (Yearly Distribution) Panel A: Lead Directors Without Lead Director Year With Lead Director (A) (B) Total Firm (C) Percent (A/C) Changes 2001 82 224 306 0.26 16 2002 116 190 306 0.38 34 2003 225 81 306 0.74 109 2004 275 31 306 0.9 50
17. All four years 82 31 306 0.26 209 Panel C: ROA Mean Median Year With LD W/o LD Difference With LD W/o LD Difference 2001 0.09 0.08 0.01 0.08 0.06 0.02 2002 0.03 0.02 0.01 0.02 0.01 0.01 2003 0.11 0.1 0.01 0.1 0.1 2004 0.14 0.11 0.03** 0.11 0.1 0.01
18. All Years 0.11 0.09 0.01 0.09 0.07 0.01 Panel D: Stock returns Mean Median Year With LD W/o LD Difference With LD W/o LD Difference 2001 0.07 0.06 0.01 0.06 0.05 0.01 2002 -0.01 -0.03 0.02*** -0.01 -0.03 0.02** 2003 0.11 0.08 0.03** 0.09 0.04 0.05*** 2004 0.15 0.07 0.08*** 0.12 0.05 0.07***
19. All Years 0.13 0.07 0.06*** 0.11 0.05 0.06*** ***: significant at .01 level; **: significant at .05 level; *: significant at .1 level, all two-tail;