Audit committee gender diversity and financial reporting: evidence from restatements

Javad Oradi · Javad Izadi Z.D.

136 citations0/0 files storedManagerial Auditing Journal

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Auditing, Earnings Management, Governance Gender Diversity and Inequality Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to investigate the association between gender diversity on the audit committees and the incidence of financial restatements. Design/methodology/approach Using a sample of 683 firm-year observations from Iranian listed companies for the period 2013 to 2017, this paper uses a logistic regression model to examine a research hypothesis related to the association between the presence of female members on the audit committee and the incidence of financial restatements. Findings After controlling for other restatement-related factors, the authors find that the presence of at least one female member on audit committees reduces the likelihood of the incidence of financial restatements. Robustness tests also confirmed this result. Moreover, the additional analyses show that independent and financial expert female members on audit committees are more strongly associated with a reduction in financial restatements. Further, the results suggest that the presence of female members on the audit committee can increase the likelihood of hiring higher quality auditors. Generally, the findings are consistent with the literature on gender diversity which suggests that women perform better in a monitoring role, are more conservative and make more ethical decisions. Practical implications The findings of this study could help with the understanding of broader participation of female directors on company boards and subgroups such as the audit committee, and of the improvement in corporate governance. Moreover, the findings can be of particular interest to monitoring authorities and policy makers in developing countries and send positive signals to them regarding the recommendation or requirement of gender diversity as a part of corporate governance mechanisms. Originality/value The present study contributes to the extant literature by providing empirical evidence on the effect of audit committee gender diversity on financial restatements. Furthermore, this study provides evidence on the more effective oversight and greater ability of independent and financial expert female directors, which has been significantly disregarded in the previous studies.

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References

1981Auditor size and audit quality 2009Women in the boardroom and their impact on governance and performance☆2002Audit committee, board of director characteristics, and earnings management 1997An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud 2003Corporate Governance, Board Diversity, and Firm Value 2003Earnings management and corporate governance: the role of the board and the audit committee 1989Boards of Directors and Corporate Financial Performance: A Review and Integrative Model 2007Gender Diversity in the Boardroom and Firm Financial Performance

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