We investigate whether board gender diversity affects firms' labor investment efficiency. We find that more gender‐diverse boards (higher representation of female directors) lead to less deviations in net hiring from the optimal level of labor investment predicted by economic fundamentals (i.e., more efficient investment in labor). The impact of board gender diversity on labor investment efficiency is robust to using alternative measures of board gender diversity and labor investment efficiency, controlling for unobservable variables, and addressing potential endogeneity concerns using propensity score matching and difference‐in‐differences approach. Additional subsample analyses suggest that the relation between female directors and labor investment efficiency is stronger in firms with weak monitoring, male CEO, and low managerial ability. Our findings provide support for the role and effectiveness of female directors in disciplining managerial opportunism and strengthening corporate governance.

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Purpose The purpose of this paper is to examine the impact of short sale prospect on future income smoothing. Design/methodology/approach This study examines how short sale prospect impacts future income smoothing. This study follows prior research and uses two measures of income smoothing. One is the correlation between the change in prediscretionary income and the change in discretionary accruals. The other is the variability of earnings relative to the variability of cash flows. Findings This study finds that short sale prospect has a negative impact on future income smoothing. This finding is robust to use different measures of short sale prospect and income smoothing and to subsample tests. Additional analysis reveals that short sale prospect, by curbing income smoothing, reduces future stock price crash risk. Originality/value To the best of the authors’ knowledge, this study is the first to examine the impact of short selling on firms’ subsequent smoothing of reported income. This study contributes to the earnings quality literature by demonstrating the governance role of short selling on future earnings smoothness.