Chief financial officer demographic characteristics and fraudulent financial reporting in China

Abstract

We investigate whether management's cognitions, values and perceptions are associated with fraud for 18 863 firm-years for Chinese listed firms from 2000 to 2014. Demographic characteristics of the chief financial officer (CFO) are used as proxies for management's cognitions, values and perceptions. We find that fraudulent financial reporting is higher when CFOs are younger, male, and have lower education backgrounds. An analysis of inflated earnings, fictitious assets, material omissions and other material misstatements provide similar results, with the exception that CFOs with higher education levels are associated with more inflated earnings.

Female CEOs and Core Earnings Quality: New Evidence on the Ethics Versus Risk-Aversion Puzzle

“…Discernibly, the strong push for gender-diverse corporate boards and executives is not only driven by ethical, moral and social fairness theories (Sun et al 2017), but also economic benefits of the unique skills, experiences and talents that women bring to such roles (Carter et al 2003(Carter et al , 2010. Unsurprisingly, a number of distinct empirical strands of research have emerged.…”

“…A more recent strand of the literature has focused on the effect that gender-diverse corporate boards and women CEOs have on corporate fraud and wrong-doing (Ho et al 2015;Palvia et al 2015;Peni and Vahamaa 2010;Sun et al 2017). For example, existing evidence indicates that the presence of women on corporate boards: (i) reduces the probability of corporate fraud (Capezio and Mavisakalyan 2016;Cumming et al 2015), (ii) enhances earnings quality (Peni and Vahamaa 2010;Srinidhi et al 2011;Zalata et al 2018); and reduces the likelihood of financial statement re-statements (Abbott et al 2012).…”

“…For example, existing evidence indicates that the presence of women on corporate boards: (i) reduces the probability of corporate fraud (Capezio and Mavisakalyan 2016;Cumming et al 2015), (ii) enhances earnings quality (Peni and Vahamaa 2010;Srinidhi et al 2011;Zalata et al 2018); and reduces the likelihood of financial statement re-statements (Abbott et al 2012). Similarly, several findings suggest that executive female directors are associated with: (i) more conservative financial reporting (Ho et al 2015;Palvia et al 2015), (ii) higher accounting quality (Barua et al 2010b), and (iii) lower fraudulent financial reporting (Sun et al 2017). However, others have indicated that female auditors are less likely to issue a going-concern decision for financially distressed clients (Hossain et al 2016).…”

“…One problem with the existing accounting studies is that they often concurrently use these two theories to underpin these gender differences (i.e., Cumming et al 2015;Ho et al 2015;Palvia et al 2015;Peni and Vahamaa 2010;Sun et al 2017). First, gender might affect earnings management level because women seem to be more concerned with ethical issues and tend to act more ethically when facing a dilemma (Bernardi and Arnold 1997;Croson and Gneezy 2009).…”

“…In particular, past studies (Cumming et al 2015;Peni and Vahamaa 2010;Sun et al 2017) have focussed on accruals-based earnings management (AEM) that became a costly method rather than other, arguably less costly, methods, particularly after financial scandals in the early 2000s, such as Enron and WorldCom, which were followed by the issuance of some restrictive regulations, such as the 2002 Sarbanes-Oxley (SOX) (Chen et al 2012;McNichols 2000;Stubben 2010). Accordingly, AEM has, arguably, become costly due to its detection cost (Abernathy et al 2014;Alfonso et al 2015), which in turn might lead managers to seek other earnings management methods that are relatively more difficult to detect if they hope to garner the benefit of earnings management (Abernathy et al 2014;Lo 2008;Roberts 2016, 2017).…”