Board gender diversity and earnings quality. Evidence from the Latin American integrated market (MILA)

Abstract

Board gender diversity is an issue of recent interest in corporate finance research. Nonetheless, there are too few studies about the influence of female directors on earnings quality in the developed markets. This situation is not better for emerging markets, where, except for China, studies like this are almost nonexistent. Consequently, this paper sheds light on the relationship between board gender diversity and earnings quality in Latin America, focusing on the listed firms in Mexico, Chile, Peru, and Colombia, which integrate the Latin American Integrated Market (Mercado Integrado Latino Americano or MILA in Spanish). With a data-panel of 361 observations from the period between 2002 and 2014, this work performs OLS regressions that indicate the existence of an inverted U-shaped relationship between board gender diversity and earnings manipulation, after controlling for other variables such as size, leverage, ROA, operating cash flow, accounting losses, and industry. Furthermore, results indicate the existence of a minimum level of female directors, 30.8% of board members, from which more board gender diversity leads to higher earnings quality.

CEO Power, Corporate Governance Mechanisms and Earnings Quality

“…The coefficient estimate of the interaction term between CEO-duality and board independence is negative and statistically significant (β = -0.12055 and p < 0.05). This shows that board independence neither substitutes nor constrains the negative impact of CEO duality on FREQ, in line with earlier empirical findings (Abad et al, 2018;Amin et al, 2019;Perafán Peña, 2018). Likewise, the coefficient estimate of the interaction term between CEO-duality and gender critical mass is also positive and statistically significant (β = 0.…”

“…Empirics back the view that a gender-diverse board reliably improves a firm's efficiency in the context of performance and ethics (Baker et al, 2019;Mitra et al, 2020;Wells, 2002). In addition, they play a relatively more active and independent motoring role as they cannot be a subset of "old boys' networks" (Bear et al, 2010;Gul et al, 2013;Perafán Peña, 2018). Similarly, female directors oppose management's opportunistic conduct (Orazalin, 2020).…”

“…In contrast, downward earnings management is often used when they have already exploited short-term benefits like bonuses Qayyum et al, 2021). As a result, these behaviours might mislead stockholders and other potential investors about their firm's primary financial performances or impact assured outcomes (Gul et al, 2013;Perafán Peña, 2018). The corporate board is primarily responsible for constraining opportunistic managerial choices by active monitoring (Carter et al, 2010;Francoeur et al, 2008;Hoang et al, 2017;Lanis et al, 2017;Nekhili et al, 2018).…”

CEO Career Horizon, CEO Power, Corporate Governance and Earnings Quality: Evidence from Egypt

“…Likewise, the difference between coefficient estimate of CEO duality and interaction term is 0.02% which is negligible in context of current study (β = (-0.1123) -0.1103=0.0020 or 0.02%). This shows that introduction of board independence does not constrain the negative relation between CEO duality and FREQ (Abad et al, 2018;Amin et al, 2019;Perafán Peña, 2018).…”

“…Some scholars have supported that gender-diverse boards improve firm efficiency (Baker et al, 2019;Mitra et al, 2020). They play a relatively more active and independent monitoring role (Perafán Peña, 2018), and are opposed to managers' opportunistic behaviour (Orazalin, 2019). Thus, their existence ensures higher monitoring, thereby decreasing CEO entrenchment behaviour when making financial decisions (Ben-Amar, Chang, & McIlkenny, 2017), leading to the following hypothesis: Hypothesis 2b: The presence of female directors on the corporate board can curtail the negative association between CEO power dynamics (duality/ownership/political connections) and firms' reported earnings quality in Egypt.…”