The impact of female directors on earnings management and the moderating effect of board quality: enabler or deterrent?

Yami, Nafisah, Poletti-Hughes, Jannine and Hussainey, Khaled (2023) The impact of female directors on earnings management and the moderating effect of board quality: enabler or deterrent? Journal of Financial Reporting and Accounting, ahead- (ahead-).

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Abstract

<jats:sec> <jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>The authors motivate this research on the gender diversity of the board because of the recent increases in the number of women in top executive teams (Francis <jats:italic>et al.</jats:italic>, 2015), which has probably been the result of the adoption of legislation for gender quotas as well as the establishment of corporate governance recommendations for gender diverse boards in several countries. The purpose of this study is to consider the quality of board directors when examining the effect of female directors on earnings management.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>The analyses follow the system generalized method of moment to address endogeneity concerns (e.g. a board with higher quality is more likely to have female directors on board and vice versa). Besides the lags of the endogenous variables, the authors use the female industry ratio as an additional instrument (Liu <jats:italic>et al.</jats:italic>, 2014), as female directors might be inspired by other female directors according to industrial sectors (measured by the two-digit industry codes), where competitors are likely to follow gender diversity practices of other firms within the same industrial sector.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>The authors’ findings show a negative and significant association between board gender diversity and earnings management (EM), suggesting that independent female directors are the drivers of such effect. High-quality boards decrease the incidence of EM but hinder the potential involvement from female directors towards reducing EM. The incumbent effect of high-quality boards on female director’s contribution on EM reverses with less powerful CEOs.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>The authors contribute to the extant literature by recognizing that the effectiveness of a female director on decreasing EM is a function of the environment in which decision-making takes place (i.e. board quality/powerful CEOs).</jats:p> </jats:sec>

Item Type:	Article
Uncontrolled Keywords:	Earnings management, Gender diversity, Board quality, Independent female directors, Transparency
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	04 Jul 2023 07:37
Last Modified:	15 Mar 2024 03:53
DOI:	10.1108/jfra-03-2023-0119
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3171383