Audit committee diversity and financial restatements

Pathak, Seemantini; Samba, Codou; Li, Mengge

doi:10.1007/s10997-020-09548-4

Cited by 7 publications

(17 citation statements)

References 105 publications

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“…This link was more pronounced by firms operating in complex environments and CEO power. Pathak et al (2021) separated between relations-and task-oriented on the one hand and between fraud-related and error-related restatements on the other hand. Relations-oriented diversity leads to lower fraud-related restatements while task-oriented diversity and error-related restatements are negatively related.…”

Section: Audit Committee Expertisementioning

confidence: 99%

The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

Velte

2021

Manag Rev Q

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In this article, we review recent archival research articles (98 studies) on the impact of corporate governance on restatements, enforcement activities and fraud as corporate financial misconduct. Applying an agency-theoretical view, we mainly differentiate between four levels of corporate governance (group, individual, firm, and institutional level). We find that financial restatements on the one hand and the group and individual level of corporate governance on the other hand are dominant in our literature review. Enforcement actions and fraud events as misconduct proxies, and the firm and institutional level of corporate governance are of lower relevance yet. The following review highlights that many studies on corporate governance find inconclusive results on firms’ financial misconduct. But there are indications that board expertise and especially gender diversity in the top management decreases firms’ financial misconduct. We know very little about the impact of non-shareholder stakeholders’ monitoring role on misconduct yet. In discussing potential future research, we emphasize the need for a more detailed analysis of misconduct proxies, recognition of moderator and especially mediator variables, especially in the interplay of the board of directors and external auditors.

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Section: Audit Committee Expertisementioning

confidence: 99%

The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

Velte

2021

Manag Rev Q

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“…There has been extensive theoretical and empirical work on the causes and consequences of financial reporting fraud. For example, many prior studies document a positive relationship between board diversity and accounting fraud (Maulidi, 2022; Wang et al , 2022; Wahid, 2019; Ning et al , 2022; Pathak et al , 2021). Another study suggests that gender diversity on boards serves as a significant moderator for fraudulent occurrences (Cumming et al , 2015), but they do not observe the role of female CFOs.…”

Section: Introductionmentioning

confidence: 99%

Are female CFOs more ethical to the occurrences of financial reporting fraud? Theoretical and empirical evidence from cross-listed firms in the US

Maulidi

Shonhadji²,

Fachruzzaman³

et al. 2022

JFC

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Purpose The purpose of this study is to examine whether female chief financial officers (CFOs) are associated with the occurrences of financial reporting fraud. This study offers new theoretical and empirical evidence on whether firms with more female CFOs are more (less) likely to engage in financial reporting fraud. Design/methodology/approach This study is based on a sample of US-listed firms from 2011 to 2021. The authors speculate that female CFOs play a weaker role in the occurrences of financial reporting fraud. So, firms with a proportional number of female CFOs should be less likely to commit financial reporting fraud. Findings The data provide support for the predictions of this study. This study suggests a negative and significant association between the dummy variables for female CFOs and the occurrences of financial reporting fraud. The authors find that this association is contingent on governance mechanisms [e.g. ownership structure, politically connected CEOs and firms' conditions that do (or do not) invest in a gender-diverse board]. Originality/value This study offers different perspectives on the impact of female CFOs on the occurrences of financial reporting fraud. The results of this study are distinguishable from prior studies. This study moves the analytical focus from the macro level (gender diversity or female corporate leaders) to the micro level (female CFOs) to understand firms' propensity to commit financial reporting fraud. Additionally, this study is based on factual financial reporting fraud cases, considering the US firms' fraud characteristics.

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“…An essential aspect of reliability is the quality of the financial information, which plays a significant role in influencing users to reach decisions, and in evaluating corporate performance (Davis & Cestona, 2021;Mohsin et al, 2015). Inferior quality financial information is detrimental to its users, and causes the investors to relinquish their faith in the reliability and relevance of the financial information (Pathak et al, 2021). Consequently, companies are encouraged to provide higher quality financial information (Alzoubi, 2014).…”

Section: Introductionmentioning

confidence: 99%

“…Moreover, the financial statement must also be strengthened by a faithful representation that is complete and free from errors (Collis et al, 2012). Unfortunately, directors tend to post financial restatements whenever there are material errors in a financial statement, indicating that the previous report contained errors and was possibly fraudulent (Pathak et al, 2021). This practice causes users to lose faith in the quality of the financial reporting, since the firm is assumed to be trying to commit fraud.…”

Section: Introductionmentioning

confidence: 99%

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Board diversity and financial reporting quality: does firm size matter?

Tan,

Taufiik

2022

JCA

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This study scrutinises how the diversity of a board of directors (BOD) determines the financial reporting quality (FRQ) and how firm size may act in a moderating role. FRQ has two measurments, which are faithful representation and relevance. Faithful representation has one proxy, which is financial restatement. Relevance has two proxies, which are the predictive value and confirmatory value. Moreover, a board’s diversity includes its members’ gender, age, expertise and educational level. The research sample consists of companies listed on the Indonesia Stock Exchange from 2016 to 2020; this produced 377 firms, resulting in 1,885 observations; we used panel data. Boards are homogeneous, except for boards with accounting expertise. Male directors can reduce the potential for financial restatements, but when moderated by firm size, they cannot guarantee the predictive value. Moreover, old directors can also reduce financial misconduct, but unqualified opinions are difficult to obtain when moderated by firm size. Further, a BOD without a member holding a doctoral degree can have a significant adverse effect on financial restatements and agency conflict. Agency conflict is the ultimate result of a negative predictive value. Meanwhile, board expertise boosts the fairness of financial reporting, resulting in obtaining an unqualified opinion and providing a predictive value. The fundamental qualitative characteristics of financial reporting must offer a relevant and faithful representation, while the previous studies employed this separately; this study tackles that gap. The previous research that tested corporate governance on FRQ is still very limited and tends to focus on one topic (e.g. gender), so our research is more comprehensive since BOD diversity was investigated. The FRQ worsens because the BOD is homogeneous. Based on the findings, the FRQ can be improved if there are female directors, younger directors, and directors who hold PhDs serving on the boards. This means that their presence/proportion must increase.

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Audit committee diversity and financial restatements

Cited by 7 publications

References 105 publications

The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

Are female CFOs more ethical to the occurrences of financial reporting fraud? Theoretical and empirical evidence from cross-listed firms in the US

Board diversity and financial reporting quality: does firm size matter?

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