The monitoring role of independent directors on corporate boards has long been a topic of interest in the corporate governance literature. Stock-exchange rules establishing directors’ independence are typically based on transaction-based financial ties, and most empirical research classifies independent directors according to this limited assessment. However, independent directors may have other ties to top executives that interfere with their exercise of independent judgment in carrying out director responsibilities.

In our forthcoming paper in the Review of Financial Studies, Paying by Donating: Corporate Donations Affiliated with Independent Directors, we investigate a new determinant of director independence: material relationships between independent directors and top executives via corporate charitable contributions to tax-exempt organizations affiliated with independent directors (affiliated donations). Corporate donations help fulfill directors’ fundraising obligations at their affiliated charities, creating a potential conflict of interest that increases directors’ disutility in carrying out monitoring responsibilities. Because corporate charitable contributions are rarely disclosed in companies’ filings with the Securities and Exchange Commission (SEC), they have been largely overlooked in corporate governance research until very recently.

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