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Do Female Directors Constrain Earnings Management? Some Evidence from Earnings Quality and Market Perceptions of Earnings Quality
Ferdinand A Gul, The Hong Kong Polytechnic University
Bin Srinidhi, The Hong Kong Polytechnic University
Judy Tsui, The Hong Kong Polytechnic University
ABSTRACT. We examine the association between female board membership and earnings quality proxied by both accruals-based and market-based measures. After correcting for selectivity bias, and other known firm and industry characteristics, we find a significantly higher quality of earnings in firms that have at least one female director on the board. Furthermore, we find that this quality increases with the proportion of female directors on the board. We attribute the higher earnings quality in firms with female directors to the female directors’ higher risk aversion and greater concern with ethical and governance issues than their male counterparts. We also examine the effect of minority board members and find that the results are not driven by the minority status of the female directors or from the need of minority directors to “prove” themselves.
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