Do Gender Diversity Recommendations in Corporate Governance Codes Matter? Evidence from Audit Committees

Abstract

SUMMARY Motivated by two opposing views, the limited supply view and the discrimination view, we examine the impact of gender diversity guidelines on the strength of the association between the presence of female audit committee members and audit quality. The limited supply view predicts that the effect of female audit committee members on audit quality would decrease after the guidelines were issued because they increased the demand for women directors without a commensurate increase in the supply of qualified women directors. The discrimination view predicts this relation would increase after the guidelines were issued since some firms would have abandoned their suboptimal hiring practices that favored men over better qualified women, resulting in higher quality firm-director matches as opportunities for women increase. Consistent with the limited supply view, we find that the positive association between audit committee gender diversity and audit quality weakened after gender diversity guidelines were introduced in Australia. JEL Classifications: G38; M42; M48. Data Availability: Data are available from the databases cited in the text.

Disclosure quality vis-à-vis disclosure quantity: Does audit committee matter in Omani financial institutions?

“…The literature has examined the impact of AC characteristics (such as independence, the frequency of meetings and specialist knowledge) on different financial reporting measures such as fraud, current and abnormal accruals and audit fees (e.g. DeZoort et al 2002;DeFond and Francis 2005;Yang and Krishnan 2005;Krishnan and Visvanathan 2007;Pomeroy and Thornton 2008;Bedard and Gendron 2010;Dhaliwal et al 2010;Cohen et al 2014;Sultana et al , 2019Sultana et al , 2020Abdou et al, 2020). Limited studies examine the impact of AC characteristics on FLD in developed countries (Abad and Bravo 2018;Bravo and Alcaide-Ruiz 2019).…”

“…As a result, female directors are unlikely to be involved in practices that involve collusion with the management to manipulate financial reports for personal benefit and are more likely to disclose fraudulent financial reporting practices, as the compassionate nature of females may mean considering the interests of shareholders over self-centric interests, ultimately resulting in effective monitoring of FRQ (Kaplan et al 2009). Moreover, many previous studies find that companies with female directors are more likely to increase FRQ (proxied by different measures, such as less earnings management and higher audit quality) (Zalata et al 2018;Gull et al 2018;Bala et al 2020;Chee and Tham 2020;Saona et al 2020;Sultana et al 2020). In addition, Allini et al (2016), Al-Yahyaee et al (2017), and Aribi et al (2018) find that the presence of women on a board makes a significant difference to the quantity of risk disclosure, which improves the effectiveness of the board and enhance accountability and transparency.…”

Outsourced internal audit function and real earnings management: The role of industry and firm expertise of external providers

“…They add that IAF can enhance the effectiveness and efficiency of operations. Also, recent audit committee research suggests that IAF may focus on REM activities, as the recent trend to using REM methods expands the audit committee's responsibility to cover REM activities (Sultana, Cahan, & Rahman, 2020; Sun, Lan, & Liu, 2014). Thus, the audit committee may pressurize the IAF provider to monitor and report such activities, as IAF is under its monitoring, and assists it to perform financial reporting and oversights of internal control systems (Bajra & Cadez, 2018a; Sarens, De Beelde, & Everaert, 2009).…”

“…Given the continuous presence of the IAF provider, compared to the external auditor, we expect that IAF is a more relevant mechanism in reducing REM because it is charged with operational audits (Jiang, William, Messier, & Wood, 2020), and it may face audit committee pressure to constrain and limit REM activities (Bajra & Cadez, 2018a; Sarens, De Beelde, & Everaert, 2009; Sultana, Cahan, & Rahman, 2020). Specifically, we consider external IAF providers to be in a position to detect and deter REM activities more effectively than in‐house IAF providers because they have greater objectivity and expertise (Caplan & Kirschenheiter, 2000; James, 2003) and can provide high‐quality internal audit (Baatwah, Al‐Ebel, & Amrah, 2019; Prawitt, Sharp, & Wood, 2012).…”

Codes of Corporate Governance of Latin American Countries: Analysis of Un Practices

“…Governance codes have evolved in their understanding as principles of economic crises (Mees & Smith, 2019), national culture in the Corporate Governance Code (Humphries & Whelan, 2017), inclusion of emerging themes such as gender diversity (Sultana, Cahan, & Rahman, 2020), use of information technology (De Haes, Huygh, Joshi, & Caluwe, 2019). Australia, for example, adopted a new edition after the crises in the years 2007-2008, under pressure from local investors (Mees & Smith, 2019).…”