Lead Independent Directors: Is Membership on the Audit Committee Associated With the Presence of an Industry Specialist Auditor?

Abstract

This study investigates whether firms with a lead independent director who serves on the audit committee are more likely to have an industry specialist auditor. Based on prior research indicating that lead independent directors are associated with higher quality corporate governance and higher quality financial reporting, we hypothesize that lead independent directors who serve on the audit committee may advocate for high-quality auditing, resulting in a greater likelihood that the firm will have an industry specialist. Consistent with this expectation and Agency Theory, our results suggest that firms with a lead independent director who serves on the audit committee are associated with either a 28.6% or a 16.8% increase in the likelihood of having an industry specialist auditor, depending on the measure of industry specialization used.