Beyond gender diversity: How specific attributes of female directors affect earnings management

Abstract

We apply the system GMM regression estimation approach on a matched sample of French firms listed on Euronext Paris during the period 2001-2010 to investigate the relationship between female directors and earnings management by considering statutory and demographic attributes of women directors. Primarily, we find a negative relationship between female directors and the magnitude of earnings management. However, this result does not hold when statutory and demographic attributes of women directors are taken into account, because the assessment of earning quality requires particular competencies and skills. Our findings thus highlight that business expertise and audit committee memberships are key attributes of female directors that promote the effective monitoring of earnings management. In contrast, women leadership and experience are positively related to the level of earnings management. An important implication of our findings is that the decision to appoint females on corporate boards should be based on their statutory and demographic attributes rather than on blind implementation of gender quotas.

Gender‐diverse boards and audit fees: What difference does gender quota legislation make?

“…A recent study conducted by Gull et al. () in the French context shows that the presence of women on audit committees is negatively and significantly associated with earnings management. In line with the evidence provided by these studies and the supply‐side perspective, the presence of women on audit committees may affect auditors’ assessment of the internal control system by decreasing control risk, potential audit effort and audit fees.…”

“…Recently, the debate among scholars in corporate finance and accounting has focused on the impact of gender diversity on board proceedings. These studies highlight that gender differences among directors and managers can be explained by differences in their communication skills, decision-making style, level of overconfidence, risk tolerance, diligence, and monitoring intensity (Abbott, Parker, & Presley, 2012;Adams & Ferreira, 2009;Bennouri et al, 2018;Gul et al, 2011;Gull et al, 2018;Gyapong et al, 2016;Harjoto et al, 2015;Huang & Kisgen, 2013;Huang et al, 2014;Ittonen et al, 2010;Schubert, 2006). The ability to communicate effectively is an important skill for performing well in key managerial positions.…”

“…According to the findings of a recent study by García-Sánchez, Martínez-Ferrero, and García-Meca (2017), the presence of women on the board of directors is instrumental in promoting accounting conservatism and producing higher quality earnings reports. Female directors are known for their favorable impact on the quality of financial reporting (e.g., Abbott et al, 2012;Barua, Davidson, Rama, & Thiruvadi, 2010;Gul et al, 2011;Gull et al, 2018;Srinidhi, Gul, & Tsui, 2011), which may reduce the need for assurance provided by external auditors.…”

“…In response to corporate failures such as Enron, WorldCom, and Parmalat, there has been increased interest in the role played by the board of directors (audit committees) in providing efficient monitoring. Existing studies investigate how board characteristics such as CEO duality, board independence, ownership structure, gender diversity, and the constitution of the audit committee affect the quality of financial reporting (e.g., Carcello et al, 2002;Carcello, Hollingsworth, & Neal, 2006;DeFond & Francis, 2005;Gull, Nekhili, Nagati, & Chtioui, 2018;Harjoto, Laksmana, & Lee, 2015;Ittonen, Miettinen, & Vähämaa, 2010;Lai, Srinidhi, Gul, & Tsui, 2017;Mitra, Hossain, & Deis, 2007).…”

“…Four reasons can be put forward as to why our research is important. First, a major current in the corporate governance literature suggests that female directors are more diligent monitors than male directors, exhibit higher levels of independence, and are more likely to be concerned about shareholder interests (Adams & Ferreira, 2009;Bennouri et al, 2018;Gul et al, 2011;Gull et al, 2018;Gyapong, Monem, & Hu, 2016;Lai et al, 2017). Second, there is a consensus among scholars that female directors tend to be more risk averse and more concerned about ethical issues than men when making organizational decisions (Byrnes, Miller, & Schafer, 1999;Schubert, 2006).…”